-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Fo6Hu8QEOyDAyd3oV5kbLjgjNvNbs/+8NbhczRAGopuO4edbsQ8Hq9rIuAs1/Sly XdtC/RwLZeGccMTx+ulYoQ== 0000912057-97-001901.txt : 19970129 0000912057-97-001901.hdr.sgml : 19970129 ACCESSION NUMBER: 0000912057-97-001901 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19961031 FILED AS OF DATE: 19970128 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DRESSER INDUSTRIES INC /DE/ CENTRAL INDEX KEY: 0000030099 STANDARD INDUSTRIAL CLASSIFICATION: ENGINES & TURBINES [3510] IRS NUMBER: 750813641 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-04003 FILM NUMBER: 97511662 BUSINESS ADDRESS: STREET 1: 2001 ROSS AVE CITY: DALLAS STATE: TX ZIP: 75201 BUSINESS PHONE: 2147406000 MAIL ADDRESS: STREET 1: P O BOX 718 CITY: DALLAS STATE: TX ZIP: 75221 10-K 1 FORM 10-K 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, 1996. 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 New York Stock Exchange, Inc. 25 CENTS Per Share Pacific Stock Exchange Incorporated Baroid Corporation 8% Guaranteed New York Stock Exchange, Inc. Senior 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. / / The aggregate market value of the voting stock (based on the closing price on the New York Stock Exchange as of January 3, 1997) held by non-affiliates of the registrant was approximately $5,576 million. As of January 3, 1997, there were 175,819,288 shares of Dresser Industries, Inc. Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Sections of Registrant's Notice of 1997 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, 1996, consolidated revenues of Registrant amounted to $6,561.5 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. The Information by Industry Segment is included in Note N to Consolidated Financial Statements on page 56 and in Management's Discussion and Analysis on pages 23-26. 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. Effective February 29, 1996, Dresser entered into an agreement to form a joint venture with Shaw Industries Ltd. ("Shaw"). Dresser contributed its Bredero Price assets and Shaw contributed its Shaw Pipe Protection assets both on a world wide basis. Dresser has an option to purchase Shaw's interest in the joint venture at the end of the second and fourth years of the joint venture. Shaw also has the right to require Dresser to purchase Shaw's interest in the joint venture under the same provisions. In August 1996, Dresser issued $300,000,000 in 7.60% unsecured debentures due in 2096. A portion of the proceeds of the debt issuance were used to repurchase shares of Dresser's common stock and to reduce short term borrowings. PETROLEUM PRODUCTS AND SERVICES SEGMENT 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. 2 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 $680.6 in 1996, $532.0 in 1995 and $554.0 million in 1994. Revenues include $147.0 million in 1994 for M-I Drilling Fluids Company which was sold effective February 28, 1994. 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. Its 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. 3 PIPE COATING PRODUCTS AND SERVICES The Bredero-Shaw joint venture 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 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 including flowlines, jumpers, service lines, and static and dynamic risers for both subsea and topside applications. ENGINEERING SERVICES SEGMENT The M.W. Kellogg Company, provides engineering, construction and related services primarily to the hydrocarbon process industries. 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 $1,621.9 million, $1,457.6 million and $1,265.2 million for 1996, 1995 and 1994, respectively. ENERGY EQUIPMENT SEGMENT 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 a manufacturer of powerful pipeline boosters for the transmission of natural gas. The Consolidated Statements of Earnings for 1996, 1995 and 1994 include $1,177.8 million, $1,138.3 million and $1,234.5 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 4 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 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. 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 and gas 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. 5 BACKLOG The backlog of unfilled orders at October 31, 1996, 1995 and 1994 is included in Management's Discussion and Analysis on pages 25-26. 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 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 60 foreign countries. Global distribution of products and services is accomplished through more than 455 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 Management's Discussion and Analysis on page 24. 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, 1996, 1995 and 1994, Registrant spent $110.6 million, $96.5 million and $102.5 million, respectively, for research and development activities. At December 1, 1996, Registrant and its subsidiaries and affiliates owned 1,790 patents and had pending 1,129 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. 6 EMPLOYEES As of October 31, 1996, Registrant had approximately 19,200 employees in the United States (an increase of approximately 2% from October 31, 1995), of whom approximately 5,800 were members of 12 unions represented by 22 bargaining units. As of the same date, Registrant had approximately 12,900 employees at foreign locations of whom approximately 2,500 were members of unions. During fiscal 1996, Registrant experienced no contract negotiation strikes in the United States. Relations between Registrant and its employees are generally considered to be satisfactory. EXECUTIVE OFFICERS OF REGISTRANT The names and ages of all executive officers of Registrant, all positions and offices with Registrant presently held by each person named and their business experience during the last five years are stated below: PRINCIPAL OCCUPATION DURING NAME, AGE AND POSITION PAST FIVE YEARS ---------------------- --------------------------- William E. Bradford (62) Chairman of the Board of Registrant Chairman of the Board, Chief since December 1996, President March Executive Officer and Director 1992 - December 1996, Chief Executive Officer since November 1995, Chief Operating Officer 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 (60) President and Chief Operating Officer President, Chief Operating Officer of Registrant since December 1996, and Director Executive Vice President November 1995 - December 1996, Senior Vice President - Operations January 1992 - November 1995; Chairman, President and Chief Executive Officer of M. W. Kellogg, Inc. June 1995 - June 1996; Chairman and Chief Executive Officer of The M. W. Kellogg Company September 1986 - June 1996, President November 1983 - June 1995. James L. Bryan (60) Senior Vice President - Operations of Senior Vice President - Operations Registrant since January 1994, Vice President - Operations May 1990 - January 1994. Clint E. Ables (57) Vice President and General Counsel of Vice President and General Counsel Registrant since October 1993, Vice President - Corporate Development November 1992 - October 1993, Senior Counsel - Corporate Ventures July 1986 - November 1992. Paul M. Bryant (50) 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 (59) 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. (60) Vice President - Washington Counsel of Vice President - Washington Registrant since September 1986. Counsel George H. Juetten (49) Vice President and Chief Financial Vice President and Chief Officer of Registrant since December Financial Officer 1996, Vice President - Controller May 1993 - December 1996; Audit Partner, Price Waterhouse LLP, independent public accountants, July 1980 - April 1993. Michael J. Kammerer (56) Vice President - Operations of Vice President - Operations Registrant since July 1996, President Valve and Controls Division since 1988. Robert J. Menerey (52) Vice President - Operations of Vice President - Operations Registrant since July 1996; President of Baroid Drilling Fluids, Inc. since May 1991, Vice President August 1990 - April 1991. Rebecca R. Morris (51) Vice President - Corporate Counsel of Vice President - Corporate Counsel Registrant since January 1994, and Secretary Secretary since November 1990, Corporate Counsel June 1987 - January 1994. Patrick M. Murray (54) Vice President - Operations of Vice President - Operations Registrant since July 1996; President of Sperry-Sun Drilling Services, Inc. since 1988. David R. Smith (50) Vice President - Tax of Registrant Vice President - Tax since January 1994, Director of Tax October 1987 - January 1994. A. Jack Stanley (54) Vice President - Operations of Vice President - Operations Registrant since July 1996; Chairman, President and Chief Executive Officer of M.W. Kellogg, Inc. since July 1996; Chairman and Chief Executive Officer of The M.W. Kellogg Company since June 1996, President since June 1995, Chief Operating Officer June 1995 - June 1996, Executive Vice President March 1991 - June 1995, Various positions of increasing responsibility since 1975. 8 G. Phillip Tevis (54) Vice President - Operations of Vice President - Operations Registrant since July 1996, President Waukesha Engine Division June 1994 - July 1995; Senior Vice President, Technology and Venture Operations of The M.W. Kellogg Company 1992 - June 1994, Vice President - Sales March 1989 - 1992. Kenneth J. Kotara (43) Controller of Registrant since Controller December 1996, Assistant Controller January 1994 - December 1996; Controller of Baroid Corporation March 1989 - January 1994. Mark Rothleitner (38) Treasurer of Registrant since December Treasurer 1996; Director International Treasury then Assistant Treasurer - International of the Black & Decker Corporation January 1991 - December 1996; Various positions of increasing responsibility culminating in Manager of International Treasury with Allied Signal Inc. June 1986 - December 1990. OFFICER EMPLOYED BY JOINT VENTURE COMPANY PRINCIPAL OCCUPATION DURING NAME, AGE AND POSITION PAST FIVE YEARS ---------------------- --------------------------- Ben R. Stuart (61) Chairman of Dresser-Rand Company since Senior Vice President - January 1997, President and Chief Operations Executive Officer March 1992 - December 1996; Senior Vice President - Operations of Registrant since March 1992, Vice President - Operations 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 90 manufacturing plants, ranging in size from approximately 3,000 square feet to in excess of 3,200,000 square feet and totaling more than 18 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 1996 Baroid Drilling Fluids, Inc. had 21 grinding and/or other facilities for beneficiating mineral ores, containing approximately 3,400 acres in plant site property. 9 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, 1996: 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 Panama City, Florida (Underwater Services) 110,000 (1) Dallas, Texas (Drill Bits) 294,000 Dallas, Texas (Completion & Production Tools) 278,500 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) 852,831 (1) Satfship Chon Buri, Thailand (Pipe Coatings) 3,249,005 (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 Engineering Services Houston, Texas (Engineering & Construction) 416,240 (1) Sudbury, England (Engineering & Construction) 163,860 Energy Equipment Manchester, England (Compression & Pumping) 242,000 Victoria, Australia (Compression & Pumping) 145,000 Connersville, Indiana (Power Systems) 376,790 Huddersfield, England (Power Systems) 120,729 Waukesha, Wisconsin (Power Systems) 774,739 (1) Appingedam, Netherlands (Power Systems) 136,935 Painted Post, New York (Compressors) 978,000 Broken Arrow, Oklahoma (Compressors) 129,000 Wythenshawe, England (Compressors) 321,000 Olean, New York (Compressors) 909,000 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) 154,000 (1) 10 APPROXIMATE FLOOR AREA INDUSTRY SEGMENT AND LOCATION PRODUCT AREA (SQUARE FEET) ----------------------------- ------------ ------------- Energy Equipment (con't.) Avon, Massachusetts (Control Products) 93,000 Montebello, California (Control Products) 60,248 Conde, France (Control Products) 147,363 Naples, Italy (Control Products) 63,852 Alexandria, Louisiana (Control Products) 247,000 Dumfermline, Scotland (Pitreavie) (Control Products) 170,801 Houston, Texas (Control Products) 156,000 Stafford, Texas (Control Products) 110,000 Voghera, Italy (Control Products) 417,610 Stratford, Connecticut (Measurement) 335,000 Berea, Kentucky (Measurement) 105,000 Jacarei, Brazil (Measurement) 80,699 Bradford, Pennsylvania (Measurement) 428,000 Houston, Texas (Measurement) 110,000 (1) Salisbury, Maryland (Measurement) 343,572 (1) Austin, Texas (Measurement) 103,491 Malmo, Sweden (Measurement) 305,987 Einbeck, Germany (Measurement) 86,511 Rio de Janeiro, Brazil (Measurement) 129,166 Bonnyrigg, Scotland (Measurement) 63,000 ______________ (1) all or a portion of these facilities are leased. 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 1996, Baroid Drilling Fluids, Inc. estimates its reserves, which it considers to be proven, to be sufficient for operation for a period of 9 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 47-50. 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, 1996. 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: FIRST SECOND THIRD FOURTH YEAR ------------------------------------------------- 1996 High....... $ 26.00 32.875 32.00 33.875 33.875 1996 Low........ $ 20.75 25.25 26.125 26.875 20.75 1995 High....... $ 21.875 22.125 24.00 25.125 25.125 1995 Low........ $ 18.50 19.375 21.625 19.125 18.50 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: FIRST SECOND THIRD FOURTH YEAR --------------------------------------------- 1996............ $ .17 .17 .17 .17 .68 1995............ $ .17 .17 .17 .17 .68 As of January 3, 1997, there were approximately 19,950 shareholders of record of the Registrant's Common Stock. 12 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.
1996 1995 1994 1993 1992 -------- -------- -------- ------- -------- (IN MILLIONS, EXCEPT PER SHARE DATA) Revenues $6,561.5 $5,628.7 $5,330.7 $5,202.3 $4,723.3 Earnings from continuing operations before extraordinary items and accounting changes: Earnings 257.5 213.1 361.8* 133.6 97.7 Per share 1.44 1.17 1.98* .74 .55 Earnings per share before special items 1.44 1.17 1.09 1.17 .83 Total assets 5,150.2 4,707.4 4,323.6 4,445.6 3,901.9 Long-term debt 756.3 459.3 460.6 492.2 148.5 Cash dividends declared 122.1 124.3 116.5 100.2 96.3 Per share** .68 .68 .66 .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 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, 1996 are summarized as follows (in millions, except per share amounts):
1996 1995 1994 -------- -------- -------- Earnings before special items $ 257.5 $ 213.1 $ 197.8 Special items - - 17.5 -------- -------- -------- Earnings from operations 257.5 213.1 215.3 Gain on sale of interest in Western Atlas - - 146.5 -------- -------- -------- Earnings before accounting change 257.5 213.1 361.8 Accounting change for postemployment benefits - (16.0) - -------- -------- -------- Net earnings $ 257.5 $ 197.1 $ 361.8 -------- -------- -------- -------- -------- -------- Earnings per share Earnings before special items $ 1.44 $ 1.17 $ 1.09 Special items - - .09 -------- -------- -------- Earnings from operations 1.44 1.17 1.18 Gain on sale of interest in Western Atlas - - .80 -------- -------- -------- Earnings before accounting change 1.44 1.17 1.98 Accounting change for postemployment benefits - (.09) - -------- -------- -------- Net earnings $ 1.44 $ 1.08 $ 1.98 -------- -------- -------- -------- -------- --------
14 RESULTS OF OPERATIONS (CONTINUED) 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.) The Company sold its 29.5% interest in Western Atlas International, Inc. in January 1994 and recognized a pre-tax gain of $275.7 million. (See Note B to Consolidated Financial Statements.) During 1994, 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. AFTER-TAX PER (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) AMOUNT SHARE --------- ------ Parker & Parsley litigation - insurance recovery/settlement $ 11.6 $ .06 Wheatley merger expenses (7.9) (.04) Restructuring and other special charges (10.0) (.05) Earnings of M-I Drilling Fluids 6.3 .03 Tax benefits from sale of affiliate 17.5 .09 ------ ----- Total $ 17.5 $ .09 ------ ----- ------ ----- 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 which was settled in 1993. (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. (See Notes A and L to Consolidated Financial Statements.) The Company recorded pre-tax expenses of $15.7 million in 1994 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 Corporation, 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 affected by prices for oil and natural gas, drilling activity and exploration and production spending by oil and natural gas producers. In 1996, the average posted price of West Texas Intermediate crude oil rose approximately 19% to $20.77 per barrel while the average spot price of natural gas increased 53% to $2.30 per million BTUs. Overall, the rig count rose 4.5% in fiscal 1996. The rig count in North America was up 4.5%, primarily reflecting an increase in wells drilled for natural gas, while the rig count in international markets increased 4.6%, reflecting higher activity levels in major producing regions like Latin America, the Middle East, Africa, the North Sea and the Gulf of Mexico. The global offshore rig count was up 11.1%. The business environment for Engineering Services and Energy Equipment is effected 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% for developing countries and 2.5% for developed countries. Developing country growth expectations are due largely to steadily increasing population and greater industrialization that will also generate rising per capita energy demand. Increasing 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 $71.5 billion in 1997, up 6.7% from a projected $67.0 billion in 1996. Recent project award activity has increased for petrochemical/chemical projects. Global project activity in 1996 hit its highest level (over 3,000 projects) since 1982, led by international project activity, particularly in the Far East and Europe. 16 RESULTS OF OPERATIONS (CONTINUED) CONSOLIDATED RESULTS 1996 COMPARED TO 1995 Earnings per share and net earnings of $1.44 and $257.5 million for 1996 were up 23% and 21%, respectively, from $1.17 and $213.1 million in 1995 before an accounting change. The earnings improvement reflects the substantial growth seen in the global market for oil and gas and their by-products. Revenues for 1996 were $6.6 billion, an increase of 17% over the $5.6 billion in 1995. Segment operating profit was $589.5 million in 1996 compared to $473.1 million in 1995 for a 25% increase. All three industry segments had higher revenues and operating profit. Within the segments, all operations had higher revenues with virtually all operations showing improvement. See the Industry Segment Analysis for discussion of results by operation. General corporate expenses of $83.6 million were $8.4 million higher than in 1995. The higher level of expenses in 1996 was primarily due to (i) foreign exchange losses on devaluations of the Venezuelan currency in December 1995 and April 1996 and (ii) costs of hedging the Company's investment in an Italian subsidiary. Higher benefit-related expenses in 1996 also contributed to the increase. Interest expense increased to $60.5 million in 1996 from $47.4 million in 1995 due to an increase in total borrowings and to the higher interest rate on new long-term debt versus the previously issued commercial paper. Interest income decreased to $12.7 million in 1996 from $21.6 million in 1995 due to a lower level of short-term investment of excess funds. The effective income tax rate for 1996 was 34% compared to 32% for 1995. The increased rate reflects a lower level of utilization of foreign net operating losses. 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. Revenues of $5.6 billion were up $298.0 million or 6% over 1994. 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. 17 RESULTS OF OPERATIONS (CONTINUED) CONSOLIDATED RESULTS (CONTINUED) 1995 COMPARED TO 1994 (continued) See the Industry Segment Analysis for discussion of changes in revenues and operating profit. General corporate expenses of $75.2 million were $4.3 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 Corporation. 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 Corporation. 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. INDUSTRY SEGMENT ANALYSIS See details of financial information by Industry Segment and Geographic Area on pages 23 through 26. PETROLEUM PRODUCTS AND SERVICES DRILLING AND PRODUCTION OPERATIONS Revenues of $1.53 billion in 1996 were 20% higher than 1995, and operating profit of $197.4 million was up 37% over the prior year. Sales to customers outside of the U.S. accounted for 62% of total sales, slightly higher than 1995, with strong growth in Latin America, Europe and Africa. Particularly strong gains were experienced by Baroid Drilling Fluids, Sperry- Sun Drilling Services and Security DBS. Baroid's revenues increased 28% over 1995 as it capitalized on the growth of higher quality wells being drilled, particularly offshore deepwater wells. Market share gains in the Gulf of Mexico, Latin America and West Africa also contributed to the exceptional growth over 1995. Sperry-Sun revenues were 20% higher than 1995 with key growth areas including the Gulf of Mexico, the North Sea and Latin America. Increases in capital spending for measurement-while-drilling tools and a continuation of high utilization rates were seen during the year. Security DBS revenues and operating profit increased in 1996 over 1995 as the result of increased sales of higher margin fixed cutter bits, combined with cost improvements obtained from manufacturing efficiencies in its U.S. plants. For total drilling and production operations, the ratio of operating profit to sales was 12.9% compared to 11.3% last year. 18 RESULTS OF OPERATIONS (CONTINUED) INDUSTRY SEGMENT ANALYSIS (CONTINUED) PETROLEUM PRODUCTS AND SERVICES DRILLING AND PRODUCTION OPERATIONS (CONTINUED) Revenues of $1.28 billion in 1995 were $99.6 million or 8% 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% of sales from 8.2% in 1994 or 8.4% 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% 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%, 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. Revenues for Security DBS rose 4%, 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. KELLOGG OIL AND GAS SERVICES Revenues of $626.7 million and operating profit of $33.9 million were 76% and 87% higher, respectively, in 1996 compared to 1995. The Bredero-Shaw pipecoating operations saw substantial increases during the year, primarily from a large contract in the Norwegian sector of the North Sea that was awarded in the latter part of 1995. Activity also increased in U.S. markets as the result of an acquisition made in 1995. Although Sub Sea revenues grew 18% in 1996 compared to 1995, earnings declined as the result of poor lay barge utilization and day rates in the Gulf of Mexico and soft market conditions in the Middle East. 19 RESULTS OF OPERATIONS (CONTINUED) INDUSTRY SEGMENT ANALYSIS (CONTINUED) PETROLEUM PRODUCTS AND SERVICES (CONTINUED) KELLOGG OIL AND GAS SERVICES (CONTINUED) Wellstream, acquired in mid-1995, was profitable in its first full year of operation and is seeing improved demand for its flexible pipe and riser systems. To meet this demand, a new plant is being constructed in the U.K. which will enable Wellstream to expand its product lines and double its existing capacity. 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. The Sub Sea underwater engineering operations had higher revenues and operating profit in 1995 as the result of improvements in both the North Sea and Gulf of Mexico, combined with the impact of acquisitions made during 1995. ENGINEERING SERVICES M. W. Kellogg revenues of $1.62 billion were 11% higher than 1995, and operating profit of $98.1 million was 24% higher. These gains resulted from higher activity on projects in the U.K., Uzbekistan, Africa and the U.S. The successful completion of significant milestones on several large contracts also contributed to the higher profit levels. A number of significant projects commenced during the year for LNG, fertilizer and petrochemical production. M. W. Kellogg revenues of $1.46 billion in 1995 rose 15% 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% 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%. Backlog of $2.9 billion at October 31, 1996 was more than double the year-ago level of $1.4 billion, reflecting increases in LNG, fertilizer, ethylene and enhanced oil recovery project bookings. 20 RESULTS OF OPERATIONS (CONTINUED) INDUSTRY SEGMENT ANALYSIS (CONTINUED) ENERGY EQUIPMENT COMPRESSION AND PUMPING Compression and Pumping revenues of $1.27 billion were 4% higher than 1995. Operating profit of $101.7 million was 23% higher than the prior year. Dresser-Rand's earnings of $71.5 million were up 14% from last year on approximately 3% higher sales. The increase in earnings reflects higher complete machine, aftermarket and contract compression sales, and reduced sales of lower margin purchased equipment. Lower manufacturing overhead and selling, general and administrative expenses also aided the earnings improvement. Revenues and operating profit both fell approximately 6% 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-Rand's revenues were from markets outside of North America. An increase in revenues in the United States and the Far East was 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. Earnings from the 49%-owned Ingersoll-Dresser Pump (IDP) joint venture were $22.1 million in 1996, $13.2 million in 1995 and $8.8 million in 1994. The improvement in 1996 over 1995 and 1994 was driven by margin improvements and continuing improvements to its cost structure since the formation of the joint venture. MEASUREMENT Revenues of $637.0 million in 1996 were $18.3 million or 3% higher than in 1995; however, 1996 operating profit of $55.7 million was $15.7 million or 22% lower than in 1995. The operating profit decrease occurred in the Wayne (fuel dispensing) Division due to pricing pressures in the U.S. and increased software development costs. The improvement in the Instrument Division primarily reflected the contribution of an acquisition in early 1996. 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 Division enjoyed improved sales in Europe and South America, margins were negatively impacted by cost and pricing pressures in the 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. 21 RESULTS OF OPERATIONS (CONTINUED) INDUSTRY SEGMENT ANALYSIS (CONTINUED) FLOW CONTROL In 1996, revenues of $611.1 million and operating profit of $64.6 million were up from 1995 by $152.7 million or 33% and $22.8 million or 55%, respectively. The increases were primarily attributable to the inclusion in the Energy Valve Division of a full year's results for Grove S.p.A., which was acquired in June 1995, as well as the beneficial impact of higher activity in its U.S. operations. The Valve and Controls Division showed improvement with volume growth associated with increased activity in the refining, chemical and power sectors as well as the ongoing benefits associated with the restructuring of its European operations. 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. POWER SYSTEMS Revenues of $306.0 million in 1996 showed a $29.1 million or 11% increase over 1995 while 1996 operating profit of $38.1 million increased $2.2 million or 6% over 1995. Both the Waukesha and Roots divisions had volume increases. Roots contributed most of the operating profit improvement. Price discounting and early-year softness in gas compression markets pressured Waukesha's operating profit in the first half of the year. A pick up in U.S. and international activity contributed to a modest recovery in the second half of fiscal 1996. 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. LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION The Company's liquidity and overall financial condition remained strong at October 31, 1996. During the year, the Company used approximately $263.2 million more cash than the operations generated. Major expenditures included $335.4 million for capital expenditures, $122.1 million for dividends, $228.1 million to repurchase shares and $32.2 million for business acquisitions. In addition, $108.2 million of cash was used to finance working capital primarily for increases in accounts receivable and inventories partially offset by an increase in contract advances. The Company increased its net borrowings by $251.4 million during the year by the issuance in August of $300.0 million (face value) 100 year notes along with a $45.6 million reduction in short-term debt. Shareholders' equity decreased $74.6 million as dividends and stock repurchases more than offset earnings. 22 LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION (CONTINUED) Total debt was $842.3 million as of October 31, 1996, compared to $590.9 million at October 31, 1995. Total debt was 35% of total book capitalization as of October 31, 1996, compared to 26% as of October 31, 1995. Net debt to net book capitalization was 28% at October 31, 1996 compared to 17% at October 31, 1995. Net debt was 10% of market capitalization at October 31, 1996, versus 8% at October 31, 1995. Management believes that the cash on hand of $232.4 million and $612.3 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 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. GEOGRAPHIC AREA AND INDUSTRY SEGMENT FINANCIAL INFORMATION - COVERED BY REPORT OF INDEPENDENT ACCOUNTANTS The following financial information by Geographic Area and Industry Segment for the years ended October 31, 1996, 1995 and 1994 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. 23 GEOGRAPHIC AREA FINANCIAL INFORMATION- COVERED BY REPORT OF INDEPENDENT ACCOUNTANTS (IN MILLIONS OF DOLLARS) Mid East/ United Latin Far East States Canada America Europe & Africa Eliminations Total ------- ------ ------- ------- --------- ------------ ------- 1996 Revenues by point of origin 3,736.3 221.9 482.4 1,854.5 655.4 (389.0) 6,561.5 Revenues by point of destination 2,407.8 268.0 829.9 1,658.0 1,397.8 - 6,561.5 U.S. exports - 82.1 350.0 193.6 546.9 - 1,172.6 Operating profit 216.0 44.9 71.5 141.4 115.7 - 589.5 Identifiable assets 2,151.4 114.8 223.4 1,065.2 329.8 (125.8) 3,758.8 1995 Revenues by point of origin 3,288.0 192.9 560.4 1,558.8 558.5 (529.9) 5,628.7 Revenues by point of destination 2,058.8 215.3 811.9 1,342.1 1,200.6 - 5,628.7 U.S. exports - 63.2 333.5 98.8 472.6 - 968.1 Operating profit 173.7 37.8 74.1 70.0 117.5 - 473.1 Identifiable assets 1,906.4 90.0 246.6 996.7 303.5 (231.0) 3,312.2 1994 Revenues by point of origin 3,061.8 242.5 409.8 1,399.7 753.4 (536.5) 5,330.7 Revenues by point of destination 1,801.4 261.9 722.3 1,069.2 1,475.9 - 5,330.7 U.S. exports - 52.5 291.1 82.5 512.6 - 938.7 Operating profit 170.8 31.2 53.4 58.0 146.8 - 460.2 Identifiable assets 1,656.3 85.6 182.0 832.0 260.9 (128.7) 2,888.1
24 INDUSTRY SEGMENT FINANCIAL INFORMATION- COVERED BY REPORT OF INDEPENDENT ACCOUNTANTS (IN MILLIONS OF DOLLARS) Petroleum Products & Services Engineering Services --------------------------------------- -------------------- Drilling & Kellogg Production Oil & Gas M. W. Kellogg Operations Services Total Operations ---------- --------- ------- ------------- 1996 Revenues 1,533.8 626.7 2,160.5 1,621.9 ------- ----- ------- ------- Operating profit 197.4 33.9 231.3 98.1 Amortization of acquisition intangibles (6.4) (5.5) (11.9) (10.2) General corporate expenses - - - - Interest expense, net - - - - ------- ----- ------- ------- Earnings before taxes 191.0 28.4 219.4 87.9 ------- ----- ------- ------- Identifiable assets 1,087.5 577.1 1,664.6 229.6 Acquisition intangibles 142.8 196.1 338.9 216.5 Corporate assets - - - - ------- ----- ------- ------- Total assets 1,230.3 773.2 2,003.5 446.1 ------- ----- ------- ------- Capital expenditures 125.8 49.8 175.6 35.1 Depreciation & amortization 74.6 32.4 107.0 20.5 Backlog (unaudited) 22.9 549.3 572.2 2,897.2 1995 Revenues 1,279.0 356.6 1,635.6 1,457.6 ------- ----- ------- ------- Operating profit 143.9 18.1 162.0 79.3 Amortization of acquisition intangibles (8.1) (4.4) (12.5) (10.2) General corporate expenses - - - - Interest expense, net - - - - ------- ----- ------- ------- Earnings before taxes 135.8 13.7 149.5 69.1 ------- ----- ------- ------- Identifiable assets 923.2 441.0 1,364.2 212.8 Acquisition intangibles 147.7 198.2 345.9 210.5 Corporate assets - - - - ------- ----- ------- ------- Total assets 1,070.9 639.2 1,710.1 423.3 ------- ----- ------- ------- Capital expenditures 101.7 55.6 157.3 7.1 Depreciation & amortization 64.3 26.1 90.4 17.6 Backlog (unaudited) 19.7 508.1 527.8 1,400.0 1994 Revenues 1,179.4 371.1 1,550.5 1,265.2 ------- ----- ------- ------- Operating profit 97.1 54.3 151.4 85.5 Amortization of acquisition intangibles (7.1) (3.2) (10.3) (10.3) General corporate expenses - - - - Gain on sale of interest in Western Atlas - - - - Interest expense, net - - - - ------- ----- ------- ------- Earnings before taxes 90.0 51.1 141.1 75.2 ------- ----- ------- ------- Identifiable assets 843.0 283.3 1,126.3 204.8 Acquisition intangibles 155.7 120.2 275.9 217.3 Corporate assets - - - - ------- ----- ------- ------- Total assets 998.7 403.5 1,402.2 422.1 ------- ----- ------- ------- Capital expenditures 73.9 32.3 106.2 2.1 Depreciation & amortization 62.8 18.1 80.9 18.8 Backlog (unaudited) 15.2 142.9 158.1 1,626.1
25 ENERGY EQUIPMENT - ----------------------------------------------------- COMPRESSION CORPORATE AND FLOW POWER AND PUMPING MEASUREMENT CONTROL SYSTEMS TOTAL ELIMINATIONS TOTAL - ----------- ----------- ------- ------- ------- ------------ ------- 1,273.5 637.0 611.1 306.0 2,827.6 (48.5) 6,561.5 ------- ----- ----- ----- ------- ------ ------- 101.7 55.7 64.6 38.1 260.1 - 589.5 (1.6) (1.5) (5.9) (.2) (9.2) - (31.3) - - - - - (83.6) (83.6) - - - - - (47.8) (47.8) ------- ----- ----- ----- ------- ------ ------- 100.1 54.2 58.7 37.9 250.9 (131.4) 426.8 ------- ----- ----- ----- ------- ------ ------- 1,024.9 257.4 424.4 162.4 1,869.1 (4.5) 3,758.8 63.2 25.0 225.9 6.6 320.7 - 876.1 - - - - - 515.3 515.3 ------- ----- ----- ----- ------- ------ ------- 1,088.1 282.4 650.3 169.0 2,189.8 510.8 5,150.2 ------- ----- ----- ----- ------- ------ ------- 75.2 14.4 16.1 17.8 123.5 1.2 335.4 44.6 14.8 25.8 10.7 95.9 6.4 229.8 1,130.3 112.5 199.0 75.1 1,516.9 (6.6) 4,979.7 1,220.4 618.7 458.4 276.9 2,574.4 (38.9) 5,628.7 ------- ----- ----- ----- ------- ------ ------- 82.7 71.4 41.8 35.9 231.8 - 473.1 (1.9) (1.3) (3.8) (.2) (7.2) - (29.9) - - - - - (75.2) (75.2) - - - - - (25.8) (25.8) ------- ----- ----- ----- ------- ------ ------- 80.8 70.1 38.0 35.7 224.6 (101.0) 342.2 ------- ----- ----- ----- ------- ------ ------- 954.7 248.0 409.6 160.6 1,772.9 (37.7) 3,312.2 65.4 19.1 204.4 6.8 295.7 - 852.1 - - - - - 543.1 543.1 ------- ----- ----- ----- ------- ------ ------- 1,020.1 267.1 614.0 167.4 2,068.6 505.4 4,707.4 ------- ----- ----- ----- ------- ------ ------- 85.4 15.3 11.3 10.0 122.0 1.8 288.2 44.7 13.9 20.2 10.3 89.1 9.5 206.6 1,076.4 115.9 234.0 91.2 1,517.5 (9.1) 3,436.2 1,304.5 566.5 405.0 248.2 2,524.2 (9.2) 5,330.7 ------- ----- ----- ----- ------- ------ ------- 87.9 72.0 29.3 34.1 223.3 - 460.2 (3.1) (1.3) (2.2) (.2) (6.8) - (27.4) - - - - - (70.9) (70.9) - - - - - 275.7 275.7 - - - - - (18.2) (18.2) ------- ----- ----- ----- ------- ------ ------- 84.8 70.7 27.1 33.9 216.5 186.6 619.4 ------- ----- ----- ----- ------- ------ ------- 924.5 227.0 296.1 153.6 1,601.2 (44.2) 2,888.1 58.5 20.9 88.8 7.0 175.2 - 668.4 - - - - - 767.1 767.1 ------- ----- ----- ----- ------- ------ ------- 983.0 247.9 384.9 160.6 1,776.4 722.9 4,323.6 ------- ----- ----- ----- ------- ------ ------- 43.4 12.8 9.4 10.9 76.5 2.3 187.1 69.9 12.9 14.8 9.7 107.3 9.3 216.3 856.1 103.1 114.4 81.3 1,154.9 (2.1) 2,937.0
26 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Report of Management Report of Independent Accountants - Price Waterhouse LLP Consolidated Statements of Earnings - Years Ended October 31, 1996, 1995 and 1994 Consolidated Balance Sheets - October 31, 1996 and 1995 Consolidated Statements of Shareholders' Equity - Years Ended October 31, 1996, 1995 and 1994 Consolidated Statements of Cash Flows - Years Ended October 31, 1996, 1995 and 1994 Note A - Accounting Change, Basis of Presentation and Summary of Significant Accounting Policies Note B - Acquisitions and Divestitures Note C - Unconsolidated Affiliated Companies Note D - Cash Flow Data Note E - Income Taxes Note F - Short-Term Debt Note G - Long-Term Debt Note H - Employee Incentive Plans Note I - Capital Shares Note J - Commitments and Contingencies Note K - Postretirement Benefits Note L - Supplementary Information and Special Charges Note M - Financial Instruments Note N - Information by Industry Segment and Geographic Area (Information is included in Item 7. of this report.) Note O - Baroid Financial Information Note P - Quarterly Financial Data (Unaudited) 27 REPORT OF MANAGEMENT The 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 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 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 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 fulfills its oversight role for the accompanying 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, the independent accountants 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. G. H. Juetten, Vice President and K. J. Kotara, Controller Chief Financial Officer 28 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareowners of Dresser Industries, Inc. In our opinion, the consolidated financial statements and financial statement schedule listed in the index appearing under Item 14(a)(1) and (2) and 14 (d) on page F-2 present fairly, in all material respects, the financial position of Dresser Industries, Inc. and its subsidiaries at October 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended October 31, 1996, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As discussed in Note A to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standards No. 112, EMPLOYERS' ACCOUNTING FOR POSTEMPLOYMENT BENEFITS, effective as of November 1, 1994. /s/ Price Waterhouse LLP PRICE WATERHOUSE LLP Dallas, Texas November 27, 1996 29 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS YEARS ENDED OCTOBER 31, ------------------------------ IN MILLIONS, EXCEPT PER SHARE DATA 1996 1995 1994 -------- -------- -------- Sales $4,184.5 $3,538.9 $3,562.3 Service revenues 2,348.7 2,073.7 1,745.0 Share of earnings of unconsolidated affiliates 28.3 16.1 23.4 -------- -------- -------- Total revenues 6,561.5 5,628.7 5,330.7 -------- -------- -------- Cost of sales 3,028.5 2,526.0 2,538.2 Cost of services 2,059.6 1,831.9 1,533.5 -------- -------- -------- Total costs of sales and services 5,088.1 4,357.9 4,071.7 -------- -------- -------- Gross earnings 1,473.4 1,270.8 1,259.0 Selling, engineering, administrative and general expenses (988.1) (909.1) (896.7) Special charges - - (8.0) Other income (deductions) Interest expense (60.5) (47.4) (49.3) Interest earned 12.7 21.6 31.1 Gain on sale of interest in Western Atlas - - 275.7 Gain on affiliate's public offering - - 11.0 Other, net (10.7) 6.3 (3.4) -------- -------- -------- Earnings before income taxes and other items below 426.8 342.2 619.4 Income taxes (145.1) (109.3) (224.7) Minority interest (24.2) (19.8) (32.9) -------- -------- -------- Earnings before accounting change 257.5 213.1 361.8 Cumulative effect of accounting change - (16.0) - -------- -------- -------- Net earnings $ 257.5 $ 197.1 $ 361.8 -------- -------- -------- -------- -------- -------- Earnings per common share Earnings before accounting change $ 1.44 $ 1.17 $ 1.98 Cumulative effect of accounting change - (.09) - -------- -------- -------- Net earnings $ 1.44 $ 1.08 $ 1.98 -------- -------- -------- -------- -------- -------- Average common shares outstanding 179.3 182.8 182.8 SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 30 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS OCTOBER 31, --------------------- 1996 1995 -------- -------- IN MILLIONS ASSETS Current Assets Cash and cash equivalents $ 232.4 $ 248.7 Notes and accounts receivable 1,173.8 988.3 Less allowance for doubtful receivables 21.7 24.6 -------- -------- 1,152.1 963.7 Inventories Finished products and work in process 699.4 617.7 Raw materials and supplies 214.2 191.7 -------- -------- 913.6 809.4 Deferred income taxes 83.8 84.8 Prepaid expenses 87.6 94.6 -------- -------- Total Current Assets 2,469.5 2,201.2 -------- -------- Investments in and receivables from unconsolidated affiliates 182.5 201.9 Goodwill less accumulated amortization of $141.7 in 1996 and $115.5 in 1995 870.6 845.2 Deferred income taxes 184.0 188.9 Other assets 181.2 143.1 Property, Plant and Equipment, at cost Land and land improvements 98.4 98.9 Buildings 473.5 429.7 Machinery and equipment 2,264.8 2,044.3 -------- -------- 2,836.7 2,572.9 Less accumulated depreciation 1,574.3 1,445.8 -------- -------- Total Properties, net 1,262.4 1,127.1 -------- -------- Total Assets $5,150.2 $4,707.4 -------- -------- -------- -------- SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 31 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS OCTOBER 31, ----------------------- IN MILLIONS 1996 1995 -------- -------- LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Short-term debt and current portion of long-term debt $ 86.0 $ 131.6 Accounts payable 570.6 520.4 Contract advances 459.8 324.4 Accrued compensation and benefits 250.4 237.7 Accrued warranty costs 51.4 53.0 Income taxes 111.3 113.2 Other accrued liabilities 332.3 332.1 -------- -------- Total Current Liabilities 1,861.8 1,712.4 -------- -------- Long-Term Debt 756.3 459.3 Employee Retirement Benefit Obligations 676.3 689.2 Deferred Compensation, Insurance Reserves and Other Liabilities 118.0 110.7 Minority Interest 155.6 79.0 Commitments and Contingencies Shareholders' Equity - Preferred shares, 10 million authorized - - Common shares, $0.25 par value Authorized: 400 million Issued: 184.9 million 46.2 46.1 Capital in excess of par value 454.8 451.6 Retained earnings 1,420.8 1,285.4 Cumulative translation adjustment (81.5) (76.7) Pension liability adjustment (6.9) (7.0) -------- -------- 1,833.4 1,699.4 Less treasury shares, at cost 251.2 42.6 -------- -------- Total Shareholders' Equity, net 1,582.2 1,656.8 -------- -------- Total Liabilities and Shareholders' Equity $5,150.2 $4,707.4 -------- -------- -------- --------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 32 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED OCTOBER 31, -------------------------------------- IN MILLIONS, EXCEPT PER SHARE DATA 1996 1995 1994 -------- -------- -------- COMMON SHARES, PAR VALUE Beginning of year $ 46.1 $ 46.0 $ 45.2 Sale of common shares - - .5 Shares issued pursuant to stock warrant agreement .1 - - Shares issued under benefit and dividend reinvestment plans - .1 .3 -------- -------- -------- End of year $ 46.2 $ 46.1 $ 46.0 -------- -------- -------- -------- -------- -------- CAPITAL IN EXCESS OF PAR VALUE Beginning of year $ 451.6 $ 448.6 $ 407.3 Sale of common shares - - 29.5 Shares issued pursuant to stock warrant agreement 7.8 - - Shares issued under benefit and dividend reinvestment plans (4.6) 3.0 11.8 -------- -------- -------- End of year $ 454.8 $ 451.6 $ 448.6 -------- -------- -------- -------- -------- -------- RETAINED EARNINGS Beginning of year $1,285.4 $1,212.6 $ 967.3 Net earnings 257.5 197.1 361.8 Dividends on common shares* (122.1) (124.3) (116.5) -------- -------- -------- End of year $1,420.8 $1,285.4 $1,212.6 -------- -------- -------- -------- -------- -------- CUMULATIVE TRANSLATION ADJUSTMENTS Beginning of year $ (76.7) $ (63.1) $ (130.2) Translation rate changes (4.8) (13.6) 67.1 -------- -------- -------- End of year $ (81.5) $ (76.7) $ (63.1) -------- -------- -------- -------- -------- -------- PENSION LIABILITY ADJUSTMENT Beginning of year $ (7.0) $ (7.6) $ (13.8) Current year adjustment .1 .6 6.2 -------- -------- -------- End of year $ (6.9) $ (7.0) $ (7.6) -------- -------- -------- -------- -------- -------- TREASURY SHARES, AT COST Beginning of year $ (42.6) $ (4.2) $ (3.6) Shares purchased (228.1) (46.8) - Shares issued under benefit and dividend reinvestment plans 19.5 8.4 (.6) -------- -------- -------- End of year $ (251.2) $ (42.6) $ (4.2) -------- -------- -------- -------- -------- -------- TOTAL SHAREHOLDERS' EQUITY, END OF YEAR $1,582.2 $1,656.8 $1,632.3 -------- -------- -------- -------- -------- --------
*Dividends paid per common share were $.68 in 1996 and 1995 and $.66 in 1994. SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 33 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED OCTOBER 31, -------------------------------------- IN MILLIONS 1996 1995 1994 -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 257.5 $ 197.1 $ 361.8 ------- ------- ------- Adjustments to reconcile net earnings to cash flow: Depreciation and amortization 229.8 206.6 216.3 Cumulative effect of accounting change - 16.0 - Earnings from unconsolidated affiliates (28.3) (16.1) (23.4) Dividends and advances from unconsolidated affiliates 37.0 23.0 28.6 Minority interest provision 24.2 19.8 32.9 Special charges - - 8.0 Gain on sale of interest in Western Atlas, net of tax - - (146.5) Changes in working capital (108.2) (27.3) (130.0) Other, net 0.2 8.1 6.4 ------- ------- ------- Total adjustments 154.7 230.1 (7.7) ------- ------- ------- Net cash provided by operating activities 412.2 427.2 354.1 ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (335.4) (288.2) (187.1) Business acquisitions (32.2) (325.7) (85.5) Proceeds from disposal of assets 14.6 35.6 6.0 Cash of acquired businesses 3.3 8.6 - Proceeds of sales of interests in: Western Atlas - net of taxes paid - - 451.8 M-I Drilling Fluids - - 160.0 ------- ------- ------- Net cash (used) provided by investing activities (349.7) (569.7) 345.2 ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of long-term debt 295.5 - - Purchase of common shares for Treasury (228.1) (46.8) - Dividends paid (122.1) (124.3) (116.5) Increase (decrease) in short-term debt (45.6) 58.2 (256.9) Increase (decrease) in long-term debt (3.0) (16.8) (46.4) Sale/issuance of common shares 20.7 7.3 30.0 ------- ------- ------- Net cash (used) by financing activities (82.6) (122.4) (389.8) ------- ------- ------- EFFECT OF TRANSLATION ADJUSTMENTS ON CASH 3.8 (1.4) 5.4 ------- ------- ------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (16.3) (266.3) 314.9 CASH AND CASH EQUIVALENTS: Beginning of year 248.7 515.0 200.1 ------- ------- ------- End of year $ 232.4 $ 248.7 $ 515.0 ------- ------- ------- ------- ------- -------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 34 DRESSER INDURSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A - ACCOUNTING CHANGE, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ACCOUNTING CHANGE Effective November 1, 1994, the Company changed its accounting for postemployment benefits as required by Statement of Financial Accounting Standards No. 112, EMPLOYERS' ACCOUNTING FOR POSTEMPLOYMENT BENEFITS (SFAS 112). Postemployment benefits include salary continuation, disability, and health care for former or inactive employees who are not retired. Medical benefits for employees on long-term disability are the most significant of the benefits. SFAS 112 requires accrual of the cost of these benefits currently. The Company had previously accrued the liability for salary continuation but had expensed the other benefits as paid. The Consolidated Statement of Earnings for 1995 includes a charge of $16.0 million (net of tax of $9.0 million) or $0.09 per share for the cumulative effect of the accounting change. BAROID AND WHEATLEY MERGERS Dresser Industries, Inc. (Dresser) merged with Baroid Corporation (Baroid) on January 21, 1994 and with Wheatley TXT Corp. (Wheatley) on August 5, 1994. "The Company," as used in these consolidated financial statements, refers to Dresser and its subsidiaries including Baroid and Wheatley. The mergers have been accounted for as poolings of interests. These consolidated financial statements reflect the results of operations and cash flows of the combined companies as if the mergers had occurred on November 1, 1993. 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 accounted for on the equity method and investments in less than 20% owned affiliates are accounted for on the cost method. REVENUE RECOGNITION Revenues and earnings from long-term engineering and construction contracts are recognized on the percentage-of-completion method, measured generally on the 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. Estimated losses are charged against earnings in the period in which such losses are identified. Revenues from sale of products and services other than from long-term construction contracts are recorded when the products are shipped or the services performed. 35 DRESSER INDURSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A - ACCOUNTING CHANGE, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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 and labor. The value of such items was $239.6 million, $138.3 million and $138.7 million for the years ended October 31, 1996, 1995 and 1994, respectively. Amounts billed in excess of revenues recognized or costs incurred are included in current liabilities under contract advances. 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 is determined using the last-in, first-out (LIFO) method. Inventories on the LIFO method were $118.4 million and $112.0 million at October 31, 1996 and 1995, respectively. Under the average cost method, inventories would have increased by $99.0 million and $100.0 million at October 31, 1996 and 1995, respectively. Inventories are stated net of progress payments received on contracts of $118.5 million and $94.5 million at October 31, 1996 and 1995, respectively. PROPERTY, PLANT AND EQUIPMENT Fixed assets are stated at cost. Depreciation is computed principally by the straight-line method over the estimated useful lives of 10 to 40 years for buildings and 3 to 20 years for machinery and equipment. 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. Maintenance and repairs are expensed as incurred. Major improvements are capitalized. GOODWILL The difference between purchase price and the fair values of net assets at date of acquisition of businesses acquired is amortized on a straight-line basis over the estimated periods benefited, not exceeding 40 years. In the event facts and circumstances indicate the carrying amount of goodwill associated with an acquisition is impaired, the carrying amount will be reduced to an amount representing the estimated undiscounted future cash flows before interest to be generated by the operation. 36 DRESSER INDURSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A - ACCOUNTING CHANGE, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) TRANSLATION OF FOREIGN CURRENCIES Financial statements of foreign subsidiaries are translated into U.S. dollars based on the functional currency of each business unit. For units whose local currency is the functional currency, 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' equity. For units which have the U.S. dollar as the functional currency, 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. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates, but management does not believe such differences will materially affect the Company's financial position, results of operations or cash flows. RECLASSIFICATION OF PRIOR YEARS Prior year financial statements have been reclassified to conform to 1996 presentations. FUTURE REPORTING REQUIREMENTS The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF (SFAS 121) and Statement of Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION (SFAS 123). The Company must adopt the provisions of SFAS 121 and SFAS 123 beginning in fiscal year 1997. SFAS 121 requires that long-lived assets and certain identifiable intangibles held and used by a company be reviewed for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. SFAS 123 encourages, but does not require, companies to recognize compensation expense for grants of stock, stock options, and other equity instruments based on a fair-value method of accounting. The Company does not expect the effect of the adoption of SFAS 121 to be material in relation to its financial position or results of operations. Concerning SFAS 123, the Company expects to continue to follow the accounting provisions of Accounting Principles Board Opinion No. 25 for stock- based compensation and to furnish the pro-forma disclosures required under SFAS 123, if material. 37 DRESSER INDURSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE B - JOINT VENTURES, ACQUISITIONS AND DIVESTITURES JOINT VENTURES Effective February 29, 1996, the Company entered into an agreement to form a joint venture with Shaw Industries Ltd. (Shaw) by contributing its Bredero Price assets and Shaw contributing its Shaw Pipe Protection assets on a worldwide basis. The Company has an option to purchase Shaw's interest in the joint venture at the end of the second and fourth years of the joint venture. Shaw also has the right to require the Company to purchase Shaw's interest in the joint venture under the same provisions. ACQUISITIONS The Company acquired several small businesses during 1996 for $32.2 million. These businesses did not have a significant effect on revenues or earnings. During fiscal 1995, the Company acquired Subtec Asia Ltd., a Sharjah, United Arab Emirates company, which provides underwater technology services primarily to the offshore oil and gas industry, for $37.6 million in cash including repayment of debt. On May 2, 1995, the Company acquired North Sea Assets P.L.C., the remotely operated vehicle business of NSA/HMB Group, for approximately $30.4 million in cash. On May 1, 1995, the Company acquired the assets of Wellstream Company L.P., which was engaged in the production of high pressure flexible pipe and riser systems, for $62.4 million in cash including repayment of debt. Also, the Company acquired the assets of Energy Coatings Company on May 5, 1995 and Pipeline Coating, Inc. on July 1, 1995 for a total of approximately $13.6 million in cash. These last two companies perform pipe coating services. Effective May 31, 1995, the Company acquired all the outstanding shares of Grove S.p.A. (Grove), an Italian corporation, for $162.7 million in cash including repayment of debt. Grove is a multinational company engaged in the production of oilfield valves and regulators. The above acquisitions were accounted for as purchases, and their results of operations are included in the Consolidated Statements of Earnings from the acquisition dates. The purchase prices exceeded the value of the net assets acquired by $244.1 million. The excess is included in goodwill in the Consolidated Balance Sheets and is being amortized on a straight-line basis over 40 years. The pro forma effect of these acquisitions is not material. In December 1993, Wheatley acquired Axelson, Inc. and Tom Wheatley Valve Company for $85.5 million cash, a $1.7 million promissory note and liabilities assumed of $2.0 million. Axelson is a manufacturer of downhole rod pumps and safety equipment used in the production of oil, and Tom Wheatley Valve Company produces valves for the oil and gas industry. These acquisitions were accounted for as purchases, and their results of operations are included in the Consolidated Statements of Earnings from the acquisition dates. DIVESTITURES 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 $558.0 million. The Company recognized a gain of $275.7 million ($146.5 million net of tax) on the sale. 38 DRESSER INDURSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE B - JOINT VENTURES, ACQUISITIONS AND DIVESTITURES (CONTINUED) DIVESTITURES (CONTINUED) Following the Baroid merger (See Note A) and in accordance with an agreement reached with the Antitrust Division of the United States Department of Justice, the Company sold its 64% interest in M-I Drilling Fluids Company to Smith International, Inc. for $160.0 million in cash, effective February 28, 1994. The Company recognized a $2.6 million pre-tax gain on the sale. In September 1994, the Company sold its 50% interest in IRI International Corporation and recognized a pre-tax gain of $4.6 million. Due to the sale, the Company was able to recognize $17.5 million of tax benefits applicable to previously unrecognized losses associated with IRI. NOTE C - UNCONSOLIDATED AFFILIATED COMPANIES The Company has several investments in less than majority owned affiliates and the nature and extent of these investments change over time. A summary of the impact of these investments on the consolidated financial statements follows (in millions): 1996 1995 1994 ------ ------ ------ Share of earnings of unconsolidated affiliates Ingersoll-Dresser Pump Company $ 22.1 $ 13.2 $ 8.8 Bufete Industriale, S.A. de C.V. - (5.2) 4.5 Other affiliates 6.2 8.1 10.1 ------ ------ ------ $ 28.3 $ 16.1 $ 23.4 ------ ------ ------ ------ ------ ------ Dividends received $ 8.2 $ 7.4 $ 13.1 ------ ------ ------ ------ ------ ------ Advances received $ 28.8 $ 15.6 $ 15.5 ------ ------ ------ ------ ------ ------ OCTOBER 31, --------------- 1996 1995 ------ ------ Investments in and receivables from unconsolidated affiliates Ingersoll-Dresser Pump Company $132.5 $143.0 Other affiliates 50.0 58.9 ------ ------ $182.5 $201.9 ------ ------ ------ ------ The Company's share of earnings for Ingersoll-Dresser Pump Company is before income taxes and includes adjustments made by the Company for differences in the timing of adoption of an accounting change and for expenses retained by the Company. In connection with the Ingersoll-Dresser Pump Company joint venture agreement and a subsequent amendment, 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 unamortized goodwill, at the exercise date. The option price will be the amount at January 31, 1995 or at the end of the month during which Ingersoll-Rand gives notice of its intention to exercise the option, whichever amount is 39 DRESSER INDURSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE C - UNCONSOLIDATED AFFILIATED COMPANIES (CONTINUED) lower. The option will expire on April 30, 1997. 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. In the fourth quarter of 1995, The M. W. Kellogg Company (a wholly-owned subsidiary) sold a portion of its interest in its Mexican affiliate, Bufete Industriale, S.A. de C.V., and recognized a gain of $7.5 million. As a result of the sale, Kellogg's ownership interest fell below 20%. Thereafter, Kellogg accounted for its investment on the cost method rather than the equity method used before the sale. Separately, Kellogg entered into a derivative transaction with the purchasers of the Bufete shares. The derivative agreement is based on the $20.4 million price of the shares sold. On the settlement date of October 30, 1998, the Company will receive or make a cash payment equal to the increase or decrease, respectively, in the value of the shares sold. The estimated effect of the agreement will be accrued during the term of the agreement. As of October 31, 1996, the carrying value of the derivative was not significant and the fair value approximated the carrying value. The counterparties to the derivative are high quality institutions, and the Company believes that they are not significant credit risks. Kellogg has the right of first refusal should the purchasers want to sell the shares. NOTE D - CASH FLOW DATA 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 is as follows (in millions): 1996 1995 1994 ------ ------ ------ Cash payments for income taxes $155.6 $ 82.6 $210.3 ------ ------ ------ ------ ------ ------ Cash payments for interest on debt $ 51.2 $ 46.1 $ 46.3 ------ ------ ------ ------ ------ ------ Working capital changes on the Consolidated Statements of Cash Flows were as follows (in millions): 1996 1995 1994 ------- ------- ------- (Increase) in receivables $(145.3) $ (71.2) $(111.9) (Increase) decrease in inventories (101.5) (89.2) 15.3 (Increase) decrease in deferred taxes and prepaid expenses 5.4 (33.3) 84.6 Increase (decrease) in accrued liabilities and accounts payable 19.2 95.0 (81.9) Increase (decrease) in contract advances 131.3 56.3 (24.4) Increase (decrease) in income taxes payable (17.3) 15.1 (11.7) ------- ------- ------- $(108.2) $ (27.3) $(130.0) ------- ------- ------- ------- ------- ------- 40 DRESSER INDURSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE E - INCOME TAXES The domestic and foreign components of earnings before income taxes consist of the following (in millions): 1996 1995 1994 ------ ------ ------ Domestic $267.0 $177.8 $494.2 Foreign 159.8 164.4 125.2 ------ ------ ------ Total earnings before income taxes $426.8 $342.2 $619.4 ------ ------ ------ ------ ------ ------ The components of the provision for income taxes are as follows (in millions): 1996 1995 1994 ------ ------ ------ Current U.S. Federal $ 84.3 $ 52.1 $129.5 State 7.1 3.7 5.1 Foreign 43.3 48.3 60.1 ------ ------ ------ 134.7 104.1 194.7 ------ ------ ------ Deferred U.S. Federal (3.0) (5.7) 33.7 Foreign 13.4 10.9 (3.7) ------ ------ ------ 10.4 5.2 30.0 ------ ------ ------ Total income tax provision $145.1 $109.3 $224.7 ------ ------ ------ ------ ------ ------ The Company has not provided U.S. federal income and foreign withholding taxes on $590 million of non-U.S. subsidiaries' undistributed earnings as of October 31, 1996, because such earnings are intended to be reinvested indefinitely to finance foreign operations and expansion. If these earnings were distributed, foreign tax credits should become available under current law to reduce or eliminate the resulting U.S. income tax liability. When the Company identifies exceptions to the general reinvestment policy, additional taxes are provided. 41 DRESSER INDURSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE E - INCOME TAXES (CONTINUED) The following is a reconciliation of income taxes at the U.S. Federal income tax rate of 35% to the effective provision for income taxes reflected in the Consolidated Statements of Earnings (in millions): 1996 1995 1994 ------ ------ ------ Provision for income taxes at statutory rates $149.4 $119.8 $216.8 Minority interest's share of domestic partnership earnings - - (3.8) Net tax benefits of foreign dividends and foreign tax credit carry forwards (10.1) (5.3) (4.2) Foreign losses not benefited 9.6 5.6 10.4 Foreign taxes less than U.S. rate on foreign earnings (7.4) (6.9) (.5) Nondeductible goodwill amortization 8.3 7.1 6.9 Book/tax basis differential of acquired property (5.4) - 4.7 Alternative minimum tax credit - - (7.3) Book/tax basis differences on Western Atlas divestiture - - 27.5 Change in valuation allowance attributable to: IRI divestiture - - (17.5) Baroid domestic operations - - (17.3) Foreign net operating losses (3.5) (6.3) - Utilization of capital losses - (2.8) - State and local income taxes, net of U.S. Federal income tax benefit 4.1 2.4 3.3 Other .1 (4.3) 5.7 ------ ------ ------ Provision for income taxes $145.1 $109.3 $224.7 ------ ------ ------ ------ ------ ------ Income tax expense is based on pretax financial accounting income. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts. 42 DRESSER INDURSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE E - INCOME TAXES (CONTINUED) The deferred income tax provisions (credits) relate to the following (in millions): 1996 1995 1994 ------ ------ ------ Postretirement benefits $ 4.1 $ 4.6 $ 9.8 Reserve for litigation settlements (1.1) (2.3) 22.4 Restructuring costs .4 (.7) 12.3 Bad debt (1.4) .2 20.2 Increase (decrease) in valuation allowance on temporary differences 4.6 (9.1) (34.8) Other items including warranty, insurance and similar accruals 3.8 12.5 .1 ------ ------ ------ Total deferred taxes $ 10.4 $ 5.2 $ 30.0 ------ ------ ------ ------ ------ ------ The components of the net deferred tax asset as of October 31, were as follows (in millions): 1996 1995 ------ ------ Deferred tax asset: Postretirement and postemployment benefits $201.3 $205.4 Long-term contracts 18.2 26.0 Warranty reserves 9.7 9.6 Inventory 21.6 24.0 Insurance reserves 33.7 34.7 Deferred compensation 19.4 19.0 Net operating loss carryforwards 24.6 14.7 Other items 27.0 23.1 Valuation allowance (17.4) (12.8) ------ ------ Total deferred tax asset 338.1 343.7 ------ ------ Deferred tax liability: Depreciation and amortization (64.6) (63.1) Other items (5.7) (6.9) ------ ------ Total deferred tax liability (70.3) (70.0) ------ ------ Net deferred tax asset $267.8 $273.7 ------ ------ ------ ------ At October 31, 1996, the Company had foreign operating loss carryforwards of approximately $50 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 entities. Approximately $25 million of these losses will carry forward indefinitely while the remaining losses expire at various dates from 1997 to 2006. The net change of $4.6 million in 1996 in the valuation allowance for deferred tax assets relates to increases in the valuation allowance for foreign losses. 43 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE F - SHORT-TERM DEBT Short-term debt at October 31, 1996 consists of $84.4 million of foreign bank loans including amounts drawn against overdraft facilities. The foreign bank loans are mostly in foreign currencies and are at negotiated interest rates. As of October 31, 1996 the Company had $280.0 million unused and available short-term committed U.S. bank lines of credit. Such lines provide for borrowings at negotiated interest rates for a high quality industrial company. The lines of credit may be terminated at the option of the banks or the Company. As of October 31, 1996 loan arrangements had 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, 1996 the amount unused and available under these arrangements aggregated $332.3 million. NOTE G - LONG-TERM DEBT Long-term debt is summarized as follows (in millions): OCTOBER 31, ------------------ 1996 1995 ------ ------ Notes, 6.25%, due 2000 $300.0 $300.0 Debentures, 7.60%, due 2096 300.0 - Senior notes, 8%, due 2003 149.3 149.2 Other loan agreements 8.6 12.4 ------ ------ 757.9 461.6 Less portion due within one year 1.6 2.3 ------ ------ $756.3 $459.3 ------ ------ ------ ------ NOTE H - 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 option price for 950,622 shares granted from 1993 through 1995 and still outstanding include prices that increase on the annual anniversary dates of grants. 44 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE H - EMPLOYEE INCENTIVE PLANS (CONTINUED) STOCK COMPENSATION PLAN (CONTINUED) Changes in outstanding options under the Stock Option Program during the three years ended October 31, 1996 and options exercisable at October 31, 1996 are as follows: Outstanding at October 31, 1993 3,285,765 Granted at $17.375 to $21.00 662,263 Exercised at $5.583 to $21.98 (419,445) Canceled or expired (475,631) --------- Outstanding at October 31, 1994 3,052,952 Granted at $19.313 to $23.00 474,737 Exercised at $9.313 to $23.04 (414,082) Canceled or expired (29,470) --------- Outstanding at October 31, 1995 3,084,137 Granted at $21.75 to $28.375 768,423 Exercised at $11.4688 to $23.88 (676,237) --------- Outstanding at October 31, 1996 3,176,323 --------- --------- Exercisable at October 31, 1996 at $9.125 to $27.875 2,000,610 --------- --------- At October 31, 1996 a total of 7.1 million Dresser common shares were reserved for granting of future options under the 1992 plan. NOTE I - CAPITAL SHARES Changes in issued common shares during the three years ended October 31, 1996 are as follows (in thousands): Shares at October 31, 1993 180,962 Sold in a public offering by Wheatley 2,100 Issued under benefit and dividend reinvestment plans 986 ------- Shares at October 31, 1994 184,048 Issued under benefit and dividend reinvestment plans 418 ------- Shares at October 31, 1995 184,466 Issued pursuant to stock warrant agreement 400 ------- Shares at October 31, 1996 184,866 ------- ------- 45 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE I - CAPITAL SHARES (CONTINUED) Changes in common shares held in treasury during the three years ended October 31, 1996 are as follows (in thousands): Treasury shares at October 31, 1993 190 Exchanged under benefit and dividend reinvestment plans 6 ----- Treasury shares at October 31, 1994 196 Shares purchased 2,327 Issued under benefit and dividend reinvestment plans (413) ----- Treasury shares at October 31, 1995 2,110 Shares purchased 8,163 Issued under benefit and dividend reinvestment plans (1,026) ----- Treasury shares at October 31, 1996 9,247 ----- ----- PREFERRED STOCK PURCHASE RIGHTS PLAN The Company has a plan under which it issues one Preferred Stock Purchase Right for each outstanding share of the Company's Common Stock. The Rights 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. 46 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE J - COMMITMENTS AND CONTINGENCIES GENERAL LITIGATION The Company continues to be involved in a lawsuit brought by parties who purchased a construction equipment dealership from a third party in 1988. In April 1994 the plaintiffs were awarded judgment of $6.5 million for compensatory damages and $4.0 million for punitive damages. The Company appealed the case. Appeal brief was filed in March 1995 and oral arguments were heard in October 1995. A decision is not expected for several months. The purchasers of the Company's former hand tool division sued the Company for fraud in connection with the October 1983 transaction. In May 1994 the jury returned a verdict awarding the plaintiffs $4.0 million in compensatory damages and $50.0 million in punitive damages. On October 13, 1994 the Court ordered a reduction of damages from $54.0 million to $12.0 million. On October 15, 1996 the Court of Appeals issued its decision reversing the trial court's decision and remanding the case for a new trial on damages. Based on a review of the current facts and circumstances, management has provided for what is believed to be a reasonable estimate of the exposure to loss associated with these matters. While acknowledging the uncertainties of litigation, management believes that these matters will be resolved without a material effect on the Company's financial position or results of operations. ASBESTOSIS LITIGATION The Company has approximately 69,000 pending claims, reflecting approximately 27,000 new claims opened in fiscal 1996 and 28,000 claims closed in fiscal 1996, in which it is alleged that third parties sustained injuries and damages resulting from the inhalation of asbestos fibers in products manufactured by the Company. Of the pending claims, approximately 15,000 allege injury as a result of exposure to asbestos contained in refractory products. The Company has entered into an agreement with its insurance carriers on these claims that currently covers 79% of its fees, expenses and indemnity payments. A lawsuit has been filed against certain of the Company's excess carriers, which, if successful, would raise the amount to 83%. During the fiscal year, there were approximately 500 new claims filed, and approximately 2,000 claims were tried, settled or summarily disposed for a gross cost of $2.4 million, including legal fees, expenses and indemnity payments. Since 1976 the Company has tried, settled or summarily disposed of approximately 18,000 claims for a gross cost of $39.1 million, including legal fees, expenses and indemnity payments. Management has no reason to believe the carriers will not be able to meet their share of the obligations under the agreement. The Company has provided for the estimated exposure, based upon past experience, of the open claims. Refractory product claims subsequent to July 31, 1992, are the responsibility of Harbison-Walker Refractories Company (formerly INDRESCO Inc.) pursuant to an agreement entered into at the time of the spin-off of INDRESCO by the Company. 47 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE J - COMMITMENTS AND CONTINGENCIES (CONTINUED) ASBESTOSIS LITIGATION (CONTINUED) Of the approximately 54,000 non-refractory product claims, approximately half are covered, in whole or in part, by a separate agreement with insurance carriers. Because the agreement for these claims is governed by exposure dates, the covered amount varies by individual claim, but currently averages 64% of fees, expenses and indemnity payments. During the fiscal year, there were approximately 7,000 new claims filed, and approximately 7,000 claims were tried, settled or summarily disposed for a gross cost of $1.5 million, including legal fees, expenses and indemnity payments. Since 1976 the Company has tried, settled or summarily disposed of approximately 16,000 claims for a gross cost of $7.6 million, including legal fees, expenses and indemnity payments. Management has no reason to believe that carriers will not be able to meet their obligations under the agreement. Regarding the claims that are not currently covered by any agreement with carriers, during the fiscal year, there were approximately 20,000 new claims filed, and approximately 18,000 claims were tried, settled or summarily disposed for a gross cost of $4.7 million, including legal fees, expenses and indemnity payments. The Company has tried, settled or summarily disposed of approximately 34,000 claims since 1976 for a total cost of $9.5 million, including legal fees, expenses and indemnity payments. A lawsuit has been filed against a separate group of insurers seeking to recover the defense and indemnity costs for these claims, and the Company is in negotiation with those carriers. There is no guarantee that the amount covered by insurance under any future agreements will be similar to prior agreements. The Company has provided for the estimated exposure of the open non-refractory claims based upon recent per claim settlement costs. In 1993 the Company sustained an adverse judgment in cases filed by employees of Ingalls Shipyard in Pascagoula, Mississippi. The Company's share of damages awarded in six cases amounted to $3.8 million plus 10% add on for punitive damages. In August 1995 an agreement was reached with plaintiff's counsel to settle these claims, along with 16,500 additional claims for which the Company is responsible. Individual plaintiffs have the right to opt out of the settlement. As of October 31, 1996, the Company had received approximately 9,000 releases for a gross cost of approximately $10.2 million, including legal fees, expenses and indemnity payments. These claims are included in pending claims until all releases are obtained. No one had opted out of the settlements and the judgment against the Company has been vacated. The Company expects that the settlement will be implemented in its entirety and has fully provided for its liability. In December 1994 a jury in Baltimore, Maryland returned a verdict on the liability portion of a consolidated asbestos case and awarded compensatory damages for five trial plaintiffs, including two against the Company's former Refractory Division. On February 9, 1995 the jury returned its verdict in the punitive damages portion of the case, applying a 200% punitive damage multiplier. During 1995 the Baltimore Court overturned the jury's verdict both as to any Company responsibility for the asbestos illnesses of the two individual trial plaintiffs and the punitive damage multiplier for the two plaintiffs and future claimants. Plaintiffs have appealed the Court's ruling. The Court did sustain the jury's findings that the Company was negligent in using asbestos in its products and in addition is responsible for any injury caused by exposure to those products on a strict liability basis. These findings, which the Company has appealed, would apply to additional claimants, each of whom would have to establish in a future mini-trial both the existence of an asbestos-related disease and that the Company's products were a substantial cause of that disease. 48 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE J - COMMITMENTS AND CONTINGENCIES (CONTINUED) ASBESTOSIS LITIGATION (CONTINUED) Included in the 69,000 pending claims at October 31, 1996 are approximately 31,000 settlements that are still carried as pending until all releases are signed. Such settlements include the 16,500 Mississippi claims and approximately 14,000 non-refractory claims in Texas, New York and New Jersey. Resolution of these claims will reduce the number of pending claims at October 31, 1996 by approximately 35% for refractory product claims and 45% for non- refractory product claims. 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 sought $200 million in actual damages and twice that amount in punitive damages. Kellogg answered denying the claim and filed a counterclaim against Quantum alleging libel, slander, breach of contract and fraud. The case was tried during 1995. On November 30, 1995 the jury returned a verdict finding that there was no fraud on the part of Kellogg, that Quantum's claim was barred by the statute of limitations, that Quantum is liable for $4.3 million in breach of contract damages, that Quantum is liable for $4.1 million in damages for theft of trade secrets, and that Quantum is liable for $3.0 million of Kellogg's legal fees. Quantum has filed a motion for a new trial and the case is now on appeal. The Company has not recognized any income related to the jury verdict. ENVIRONMENTAL MATTERS The Company has been preliminarily identified as a potentially responsible party in 97 Superfund sites. Primary responsibility for eight of these sites was assumed by Global Industrial Technologies Inc. and there is joint responsibility at three sites. The Company has entered into settlements at 35 sites at a total cost of $2 million. Upon evaluation of the information concerning various sites, the Company determined that it is not a responsible party and had no liability at 26 sites. Based on the Company's historical experience with similar claims and management's understanding of the facts and circumstances, management believes that the resolution of liability at the 28 remaining sites will be reached without material effect on the Company's financial position or results of operations. 49 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE J - COMMITMENTS AND CONTINGENCIES (CONTINUED) 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. OTHER COMMITMENTS Total rental and lease expense charged to earnings was $107.0 million in 1996, $103.4 million in 1995 and $99.0 million in 1994. At October 31, 1996 the aggregate minimum annual obligations under noncancelable leases were: $58.9 million for 1997; $35.8 million for 1998; $23.9 million for 1999; $15.5 million for 2000; $13.6 million for 2001 and $50.3 million for all subsequent years. The lease obligations related primarily to general and sales office space and warehouses. NOTE K - POSTRETIREMENT BENEFITS HEALTH CARE AND LIFE INSURANCE BENEFITS The Company has health care and life insurance plans for eligible retired U.S. union and non-union employees. Although certain plans are contributory, the Company generally absorbs the majority of the costs. The Company funds the benefit plans as claims and premiums are paid. The net periodic postretirement benefit expense and the actual benefits paid were as follows (in millions): 1996 1995 1994 ------ ------ ------ Service cost for benefits earned $ 4.2 $ 4.2 $ 4.5 Interest cost on accumulated postretirement benefit obligation 29.3 29.7 27.1 Net amortization of unrecognized gain (19.2) (18.5) (15.7) ------ ------ ------ Net periodic postretirement benefit expense $ 14.3 $ 15.4 $ 15.9 ------ ------ ------ ------ ------ ------ Actual benefits paid $ 24.6 $ 25.3 $ 24.8 ------ ------ ------ ------ ------ ------
50 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE K - POSTRETIREMENT BENEFITS (CONTINUED) HEALTH CARE AND LIFE INSURANCE BENEFITS (CONTINUED) The liability of the plans at October 31 was as follows (in millions): 1996 1995 ------ ------ Actuarial present value of accumulated postretirement benefit obligation: Retirees $253.3 $268.9 Fully eligible active plan participants 53.8 47.4 Other active plan participants 65.8 69.1 ------ ------ Total accumulated postretirement benefit obligation 372.9 385.4 Unamortized gains from plan amendments 158.8 173.6 Unrecognized net gain 92.0 75.0 ------ ------ Accrued postretirement benefit liability $623.7 $634.0 ------ ------ ------ ------
Accrued compensation and benefits on the Consolidated Balance Sheets include the current portion of the accrued liability. Assumptions used to calculate the Accumulated Postretirement Benefit Obligation as of October 31 were as follows: Discount rate - 8.0% for 1996 and 8.25% for 1995 and 1994 Health care trend rate (weighted based on participant count) - 1996 - 10.0% for 1996 declining to 5.5% in 2002 and level thereafter. 1995 - 10.0% for 1995 declining to 5.5% in 2002 and level thereafter. 1994 - 12.0% for 1994 declining to 5.5% in 2003 and level thereafter. A one percentage-point increase in the assumed health care cost trend rate for each year would increase the net postretirement benefit expense for 1996 by approximately $3.3 million and would increase the accumulated postretirement benefit obligation as of October 31, 1996 by approximately $28.1 million. PENSION PLANS AND RETIREMENT SAVINGS PLANS The Company has numerous defined benefit pension plans covering certain employees in the United States. The benefits under the U.S. plans are based primarily on years of service and employees' qualifying compensation during the final years of employment for salaried employees and are based primarily on years of service for hourly employees. 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, 1996. 51 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE K - POSTRETIREMENT BENEFITS (CONTINUED) PENSION PLANS AND RETIREMENT SAVINGS PLANS (CONTINUED) 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 has defined contribution 401(K) plans for most of its U.S. salaried employees and certain U.S. union hourly employees. Under these plans, eligible employees may contribute amounts through payroll deductions. The employee contributions and employer contributions are invested in funds available under the plans. Expense for all defined contribution plans was $41.8 million, $24.4 million and $18.6 million in 1996, 1995 and 1994, respectively. The 1996 expense increase versus 1995 resulted from a full year's cost of the new retirement savings plan compared with five months in 1995. The 1995 expense increase versus 1994 resulted from the costs of the new retirement savings plan. The expense increases were substantially offset by lower defined benefit plan expenses. Expense for all defined benefit plans and cash contributions to the plans were as follows (in millions): 1996 1995 1994 ------ ------ ------ Service cost for benefits earned $ 15.5 $ 17.4 $ 22.8 Interest cost on projected benefit obligation 43.6 41.0 38.2 Return on plan assets (48.8) (44.6) (42.0) Net amortization and deferral (3.7) (1.2) 2.5 ------ ------ ------ Net pension expense $ 6.6 $ 12.6 $ 21.5 ------ ------ ------ ------ ------ ------ Cash contributions $ 18.8 $ 23.5 $ 28.8 ------ ------ ------ ------ ------ ------
52 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE K - POSTRETIREMENT BENEFITS (CONTINUED) PENSION PLANS AND RETIREMENT SAVINGS PLANS (CONTINUED) The funded status of the defined benefit plans on the measurement dates of October 31 was as follows (in millions): Plans with Assets Exceeding Projected Benefits 1996 1995 -------- -------- Actuarial present value of benefit obligations: Vested benefit obligation $ 251.6 $ 238.6 -------- -------- -------- -------- Accumulated benefit obligation $ 256.0 $ 243.3 -------- -------- -------- -------- Projected benefit obligation $ 277.8 $ 262.9 Plan assets at fair value 384.3 348.6 -------- -------- Plan assets over projected benefit obligation 106.5 85.7 Unrecognized net loss 1.3 13.3 Prior service cost not yet recognized in net periodic pension expense (24.1) (29.5) Unrecognized transition net asset (16.2) (19.6) -------- -------- Prepaid pension costs $ 67.5 $ 49.9 -------- -------- -------- -------- Plans with Projected Benefits Exceeding Assets 1996 1995 -------- -------- Actuarial present value of benefit obligations: Vested benefit obligation $ 246.1 $ 206.9 -------- -------- -------- -------- Accumulated benefit obligation $ 260.9 $ 222.5 -------- -------- -------- -------- Projected benefit obligation $ 297.2 $ 253.5 Plan assets at fair value 217.6 181.8 -------- -------- Projected benefit obligation over plan assets (79.6) (71.7) Unrecognized net loss 1.4 .8 Prior service cost not yet recognized in net periodic pension expense 24.3 20.8 Unrecognized transition obligation 7.8 8.9 Adjustment required to recognize minimum liability (32.5) (28.3) -------- -------- Pension liability $ (78.6) $ (69.5) -------- -------- -------- -------- On the Consolidated Balance Sheets, "Other assets" include prepaid pension costs and "Accrued compensation and benefits" include the current portion of the pension liabilities. The Company recognized an additional minimum pension liability for underfunded defined benefit plans. The additional minimum liability is equal to the excess of the accumulated benefit obligation over plan assets and accrued liabilities. A corresponding amount is recognized as either an intangible asset or a reduction of shareholders' equity. As of October 31, 1996 and 1995, the Company had recorded additional liabilities of $32.5 million and $28.3 million, intangible assets of $20.9 million and $16.3 million, and adjustments to shareholders' equity, (net of income taxes and minority interest) of $6.9 million and $7.0 million, respectively. 53 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE K - POSTRETIREMENT BENEFITS (CONTINUED) PENSION PLANS AND RETIREMENT SAVINGS PLANS (CONTINUED) The actuarial assumptions used in determining funded status of the plans were as follows: 1996 1995 ----------- ----------- U.S. Plans Discount rate 8.0% 8.25% Expected long-term rate of return on assets 8.5% to 9.0% 8.5% to 9.0% Rate of increase in compensation levels 4.0% to 5.5% 4.0% to 5.5% Foreign Plans Discount rate 7.0% to 12.5% 7.0% to 12.5% Expected long-term rate of return on assets 7.0% to 13.5% 7.0% to 13.5% Rate of increase in compensation levels 4.0% to 11.0% 4.0% to 11.0% NOTE L - SUPPLEMENTARY INFORMATION AND SPECIAL CHARGES Depreciation of property, plant and equipment charged to earnings amounted to $193.4 million in 1996, $174.4 million in 1995 and $187.0 million in 1994. Amortization of intangibles was $36.4 million in 1996, $32.2 million in 1995 and $29.3 million in 1994 and is included in selling, engineering, administrative and general expenses. Research and development costs charged to earnings were $110.6 million in 1996, $96.5 million in 1995 and $102.5 million in 1994. The components of other income (deductions), net on the Consolidated Statements of Earnings are as follows (in millions): 1996 1995 1994 ------ ------- ------- Gain on business disposals $ - $ - $ 7.1 Gains on sales of assets 4.5 7.5 3.1 Foreign exchange gain (loss) (15.2) (1.2) (13.6) ------ ------- ------- $(10.7) $ 6.3 $ (3.4) ------ ------- ------- ------ ------- ------- Special charges consist of the following (in millions): 1994 ------ Parker & Parsley - insurance recovery $ 18.4 Merger expenses (10.7) Drill bit pricing litigation settlement (9.5) Restructuring charges (6.2) ------ $ (8.0) ------ ------ In April 1994 the Company entered into settlement agreements with certain insurance carriers relating to the Parker & Parsley litigation which was settled in 1993. Pursuant to the settlement agreements, the Company received approximately $33.8 million, which, after legal fees and a provision for other potential litigation settlements, resulted in a gain of $18.4 million. 54 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE L - SUPPLEMENTARY INFORMATION AND SPECIAL CHARGES (CONTINUED) In 1994 the Company recorded expenses associated with the Wheatley merger (See Note A) totaling $10.7 million, including professional fees and costs related to eliminating duplicate facilities. The Company paid $9.5 million in February 1994 for the settlement of drill bit pricing litigation. In 1994 the Company accrued expenses of $6.2 million primarily for personnel reduction costs associated with restructuring its Valve and Controls operations. Of the costs, $2.5 million was paid in 1994 and $3.7 million was paid in 1995. NOTE M - FINANCIAL INSTRUMENTS The Company does not hold or issue financial instruments for purposes of trading. The carrying amounts of cash and short-term investments, accounts receivable, accounts payable and short-term debt approximate fair value because of the short maturity of these instruments. The carrying amounts of long-term debt, including the current portion, were lower than fair value by $1.6 million at October 31, 1996 and $4.8 million at October 31, 1995. Fair values of the debt were determined by reference to market interest rates. The Company has cash and cash equivalents, receivables and payables denominated in currencies other than functional 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 hedges such risks by entering into forward exchange contracts. A forward exchange contract is an agreement to exchange different currencies at a specified future date and forward rate. The Company does not enter into forward contracts to engage in speculation, nor does the Company hedge investments in foreign entities. The Company had $282.9 million and $394.0 million, notional amounts, of forward exchange contracts outstanding at October 31, 1996 and 1995, respectively. The notional amounts are used to express the volume of these transactions and do not represent exposure to loss. At October 31, 1996, substantially all of these contracts were in European currencies. The carrying value of the contracts was not significant. The fair value of the contracts, based on year- end quoted rates for purchasing contracts with similar terms and maturity dates, approximated carrying value and was also not significant. See Note C for information about a derivative financial instrument that the Company entered into with the purchasers of part of the Company's investment in an unconsolidated affiliate. The Company's financial instruments do not represent significant credit risks at October 31, 1996 because they are either with high quality financial institutions or widely dispersed across many customers and financial institutions. 55 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE N - INFORMATION BY INDUSTRY SEGMENT AND GEOGRAPHIC AREA Descriptions of the Company's industry segments are as follows: PETROLEUM PRODUCTS AND SERVICES This segment provides services and project management for oil and gas exploration, drilling, completion, production and transmission activities. Principal products and services of the Drilling and Production Operations include integrated well services and project management, drilling fluids systems, drill bits, measurement-while-drilling services, directional drilling services, completion and production tools, production valves and pumps, meters and measuring equipment. Kellogg Oil and Gas Services is an EPIC contractor (engineering, procurement, installation and construction) for subsea and onshore projects, and it supplies ROVs (remotely operated vehicles), seabed equipment, flexible flowlines, riser systems and pipe coating, pipe laying and pipe burying services. ENGINEERING SERVICES This segment consists of the M. W. Kellogg Company, which provides engineering, construction and related services primarily for the hydrocarbon processing industries. M. W. Kellogg has its own proprietary technologies and utilizes the advanced technologies of others to facilitate the environmentally acceptable conversion of raw hydrocarbons and their chemicals into value-added end products. The Company participates in projects involving liquefied natural gas (LNG) plants and receiving terminals, refining and petrochemical activities and ammonia/fertilizer facilities. This includes grassroots activity as well as the modernizing and retrofitting of energy-related complexes for efficiency and environmental control purposes. ENERGY EQUIPMENT This segment designs, manufactures and markets engineered products for oil and gas producers, transporters and processors, petroleum marketers and the power industry. Compression and Pumping Operations include the Dresser- Rand joint venture, which produces compressors, turbines, generators and electric motors, as well as the Ingersoll-Dresser Pump unconsolidated joint venture and the Mono Pumps unit. Measurement Operations supply gasoline dispensing systems, instruments, meters and piping specialties. Flow Control Operations manufacture a broad range of valves (including control, safety, safety relief, ball, check, gate/plug, butterfly and industrial valves) as well as fluid-powered, linear and electric actuators. Power Systems Operations produce engines, generators and blowers. The Financial Information by Industry Segment and Geographic Area for the years ended October 31, 1996, 1995 and 1994 is included on pages 23 through 26 of Management's Discussion and Analysis included elsewhere in this report and is an integral part of this Note to Consolidated Financial Statements. 56 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE O - BAROID FINANCIAL INFORMATION Baroid has ceased filing periodic reports with the Securities and Exchange Commission. Baroid's 8% Senior Notes remain outstanding (See Note G), and the Notes are fully guaranteed by Dresser. As long as the Notes remain outstanding, summarized financial information of Baroid is required to be presented as follows (in millions): OCTOBER 31, ----------------------- BAROID CORPORATION 1996 1995 -------- -------- Current assets $ 796.2 $ 680.0 Noncurrent assets 578.9 532.8 -------- -------- Total $1,375.1 $1,212.8 -------- -------- -------- -------- Current liabilities 377.7 $ 345.1 Noncurrent liabilities 429.2 408.2 Shareholders' equity 568.2 459.5 -------- -------- Total $1,375.1 $1,212.8 -------- -------- -------- -------- YEARS ENDED OCTOBER 31, -------------------------------------- 1996 1995 1994 -------- -------- -------- Revenues $1,606.8 $1,323.3 $ 923.2 -------- -------- -------- -------- -------- -------- Gross earnings $ 443.7 $ 358.8 $ 245.8 -------- -------- -------- -------- -------- -------- Earnings from operations $ 185.2 $ 133.1 $ 78.2 Other income (deductions) (21.0) (18.5) (17.8) -------- -------- -------- Earnings before taxes and minority interests 164.2 114.6 60.4 Income taxes (55.8) (37.8) (19.8) Minority interest (.4) .4 1.9 -------- -------- -------- Net earnings $ 108.0 $ 77.2 $ 42.5 -------- -------- -------- -------- -------- -------- 57 DRESSER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE P - QUARTERLY FINANCIAL DATA (UNAUDITED) QUARTERS ENDED ---------------------------------------------- IN MILLIONS, EXCEPT PER SHARE DATA JANUARY 31 APRIL 30 JULY 31 OCTOBER 31 ---------- -------- -------- ---------- 1996 Net revenues $1,462.9 $1,629.6 $1,638.0 $1,831.0 -------- -------- -------- -------- -------- -------- -------- -------- Gross earnings 320.4 349.8 369.6 433.6 -------- -------- -------- -------- -------- -------- -------- -------- Net earnings 46.6 57.2 68.3 85.4 -------- -------- -------- -------- -------- -------- -------- -------- Earnings per common share $ .26 $ .31 $ .38 $ .49 -------- -------- -------- -------- -------- -------- -------- -------- 1995 Net revenues $1,300.3 $1,261.2 $1,437.4 $1,629.8 -------- -------- -------- -------- -------- -------- -------- -------- Gross earnings 281.5 295.7 322.1 371.5 -------- -------- -------- -------- -------- -------- -------- -------- Earnings before accounting change $ 38.6 $ 45.1 $ 45.0 $ 84.4 Cumulative effect of accounting change (16.0) - - - -------- -------- -------- -------- Net earnings $ 22.6 $ 45.1 $ 45.0 $ 84.4 -------- -------- -------- -------- -------- -------- -------- -------- Earnings per common share Earnings before accounting change $ .21 $ .25 $ .25 $ .46 Cumulative effect of accounting change (.09) - - - -------- -------- -------- -------- Net earnings $ .12 $ .25 $ .25 $ .46 -------- -------- -------- -------- -------- -------- -------- --------
58 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT. Certain information required by this Item is incorporated by reference to Dresser's definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this report (the "Dresser Proxy Statement"). ITEM 11. EXECUTIVE COMPENSATION. The information required by this Item is incorporated by reference to the Dresser Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required by this Item is incorporated by reference to the Dresser Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required by this Item is incorporated by reference to the Dresser Proxy Statement. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) List of Financial Statements, Financial Statement Schedules and Exhibits. (1) and (2) - Response to this portion of Item 14 is submitted as a separate section of this report. (3) Response to this portion of Item 14 is submitted as a separate section of this report. (b) Reports on Form 8-K. None. (c) Exhibits - Response to this portion of Item 14 is submitted as a separate section to this report. Management contracts or compensatory plans or arrangements in which Directors or executive officers participate are included in Exhibits 10.1 - 10.26. (d) Financial Statement Schedules - The response to this portion of Item 14 is submitted as a separate section of this report. 59 UNDERTAKINGS For the purpose of complying with the rules governing registration statements on Form S-8 under the Securities Act of 1933 (as amended effective July 31, 1990), the undersigned Registrant hereby undertakes as follows, which undertaking shall be incorporated by reference into Registrant's registration statements on Form S-8 Nos. 2-76847 (filed April 5, 1982), 2-81536 (filed January 28, 1983), 33-26099 (filed December 21, 1988), 33-30821 (filed August 28, 1989), 33-48165 (filed May 27, 1992), 33-52067 (filed January 28, 1994) and 33-52989 (filed April 6, 1994), and to the Post-Effective Amendments on Form S-8 to Registration Statement on Form S-4 Nos. 33-50563 (filed January 28, 1994) and 33-54099 (filed August 31, 1994): Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of Registrant pursuant to the provisions of the Company's Restated Certificate of Incorporation, as amended, or otherwise, Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by Registrant of expenses incurred or paid by a director, officer or controlling person of Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. 60 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on January 27, 1997. DRESSER INDUSTRIES, INC. By: /s/ KENNETH J. KOTARA ---------------------------------- Kenneth J. Kotara Controller Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on January 27, 1997. SIGNATURE TITLE --------- ----- *WILLIAM E. BRADFORD - ------------------------------------- Chairman of the Board, Chief Executive (William E. Bradford, Director) Officer and Director (Principal Executive Officer) *GEORGE H. JUETTEN - ------------------------------------- Vice President and Chief Financial (George H. Juetten) Officer (Principal Financial Officer) /S/ KENNETH J. KOTARA Controller - ------------------------------------- (Principal Accounting Officer) (Kenneth J. Kotara) *SAMUEL B. CASEY, JR. *J. LANDIS MARTIN - ------------------------------------- ------------------------------------- (Samuel B. Casey, Jr., Director) (J. Landis Martin, Director) *LAWRENCE S. EAGLEBURGER *LIONEL H. OLMER - ------------------------------------- ------------------------------------- (Lawrence S. Eagleburger, Director) (Lionel H. Olmer, Director) *SYLVIA A. EARLE, PH.D. *JAY A. PRECOURT - ------------------------------------- ------------------------------------- (Sylvia A. Earle, Ph.D., Director) (Jay A. Precourt, Director) *RAWLES FULGHAM *DONALD C. VAUGHN - ------------------------------------- ------------------------------------- (Rawles Fulgham, Director) (Donald C. Vaughn, Director) *JOHN A. GAVIN *RICHARD W. VIESER - ------------------------------------- ------------------------------------- (John A. Gavin, Director) (Richard W. Vieser, Director) *RAY L. HUNT - ------------------------------------- (Ray L. Hunt, Director) *By:/s/ REBECCA R. MORRIS - ------------------------------------- Rebecca R. Morris (Attorney-In-Fact) FORM 10-K ITEM 14(a)(1) AND (2) AND ITEM 14(d) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE YEAR ENDED OCTOBER 31, 1996 DRESSER INDUSTRIES, INC. DALLAS, TEXAS F-1 LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES The following consolidated financial statements and report of independent accountants are included in Item 8: Page Number ------ Report of Independent Accountants 29 Consolidated Statements of Earnings-- Years ended October 31, 1996, 1995, and 1994 30 Consolidated Balance Sheets-- October 31, 1996 and 1995 31 Consolidated Statements of Shareholders' Equity-- Years ended October 31, 1996, 1995 and 1994 33 Consolidated Statements of Cash Flows-- Years ended October 31, 1996, 1995, and 1994 34 Notes to Consolidated Financial Statements 35 The following consolidated financial statement schedule of Dresser Industries, Inc. is included herein: Schedule II--Valuation and Qualifying Accounts All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. Separate financial statements are not presented for any of the unconsolidated affiliates because none constitutes a significant subsidiary. F-2 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS DRESSER INDUSTRIES, INC. AND SUBSIDIARIES (MILLIONS OF DOLLARS) Col. C ----------------------- Col. A Col. B Additions Col. D Col. E ------ ------------------------------------ ----------------------- Balance at Charged to Charged to Balance at Beginning Costs and Other End of Descriptions of Period Expenses Accounts Deductions Period ------------ ---------- ----------- ---------- ---------- ---------- ALLOWANCE DEDUCTED FROM ASSETS TO WHICH THEY APPLY Year ended October 31, 1996 For doubtful receivables classified as current assets $24.6 $3.2 $ - $ 6.1(B) $21.7 ----- ---- ---- ----- ----- ----- ---- ---- ----- ----- For deferred tax asset valuation allowance classified as noncurrent assets $15.0 $ - $2.4 $ - $17.4 ----- ---- ---- ----- ----- ----- ---- ---- ----- ----- Year ended October 31, 1995 For doubtful receivables classified as current assets $30.4 $3.7 $ .7 $10.2(B) $24.6 ----- ---- ---- ----- ----- ----- ---- ---- ----- ----- For deferred tax asset valuation allowance classified as noncurrent assets $21.9 $ - $ - $ 6.9 $15.0 ----- ---- ---- ----- ----- ----- ---- ---- ----- ----- Year ended October 31, 1994 For doubtful receivables classified as current assets $33.3 $6.4 $1.1(A) $10.4(B) $30.4 ----- ---- ---- ----- ----- ----- ---- ---- ----- ----- For deferred tax asset valuation allowance classified as noncurrent assets $54.3 $ - $ - $32.4 $21.9 ----- ---- ---- ----- ----- ----- ---- ---- ----- -----
Notes: (A) Primarily reclassification from other accrued liabilities, and addition of accounts due to acquisition. (B) Receivable write-offs and reclassifications, net of recoveries. F-3 INDEX TO EXHIBITS EXHIBIT DESCRIPTION - ------- ----------- 3.1 Restated Certificate of Incorporation of Registrant and amendments thereto. (Incorporated by reference to Exhibit 3(I) to Registrant's Form 10-Q/A for the quarter ended April 30, 1996). *3.2 By-Laws, as amended, of Registrant. 4.1 Rights Agreement dated August 16, 1990, between Registrant and Harris Trust Company of New York as Rights Agent. (Incorporated by reference to Exhibit 1 to Registration Statement on Form 8-A filed on August 30, 1990, as amended by Amendment No.1 on Form 8 filed on October 3, 1990). 4.2 Form of Indenture, between Dresser Industries, Inc. and NationsBank of Texas, N.A., as Trustee, for unsecured debentures, notes and other evidences of indebtedness. (Incorporated by reference to Exhibit 4.1 to Registrant's Registration Statement on Form S-3, Registration No. 33-59562). 4.3 Form of Indenture, between Baroid Corporation and Texas Commerce Bank National Association, as Trustee, for 8% Senior Notes due 2003. (Incorporated by reference to Exhibit 4.01 to the Registration Statement on Form S-3, Registration No. 33-60174). 4.4 Form of Supplemental Indenture, between Dresser Industries, Inc., Baroid Corporation and Texas Commerce Bank N.A. as Trustee, for 8% Guaranteed Senior Notes due 2003. (Incorporated by reference to Exhibit 4.3 to Registration Statement on Form S-4 filed by Baroid Corporation, Registration No. 33-53077). 4.5 Form of Indenture, between Dresser Industries, Inc. and Texas Commerce Bank National Association, Trustee, for 7.60% Debentures due 2096. (Incorporated by reference to Exhibit 4 to the Registration Statement on Form S-3 as amended, Registration No. 333-01303). 4.6 Form of Supplemental Indenture, between Dresser Industries, Inc. and Texas Commerce Bank National Association, Trustee, for 7.60% Debentures due 2096. (Incorporated by reference to Exhibit 4.1 to the Registration Statement on Form 8-K filed on August 9, 1996). 10.1 Dresser Industries, Inc. Deferred Compensation Plan. (Incorporated by reference to Exhibit A to Registrant's Proxy Statement dated February 11, 1966, filed pursuant to Regulation 14A, File No. 1-4003). 10.2 Dresser Industries, Inc. Short-Term Deferred Compensation Plan. (Incorporated by reference to Exhibit 10(b) to Registrant's Form 10-K for the year ended October 31, 1992). - ----------- * Filed Herewith INDEX TO EXHIBITS (CONT.) EXHIBIT DESCRIPTION - ------- ----------- 10.3 Dresser Industries, Inc. Retirement Income Plan under ERISA, as amended effective May 1, 1984, and Amendments No. 1, 2 and 3 thereto. (Incorporated by reference to Exhibit 10(d) to Registrant's Form 10-K for the year ended October 31, 1986). 10.4 Dresser Industries, Inc. Consolidated Salaried Retirement Plan, as amended by restatement effective May 1, 1994. (Incorporated by reference to Exhibit 10.4 to Registrant's Form 10-K for the year ended October 31, 1994). 10.5 Amendments No. 1 and 2 to the Dresser Industries, Inc. Consolidated Salaried Retirement Plan, as amended and restated effective May 1, 1994. (Incorporated by reference to Exhibit 10.5 to Registrant's Form 10-K for the year ended October 31, 1995). 10.6 Dresser Industries, Inc. 1982 Stock Option Plan. (Incorporated by reference to Exhibit A to Registrant's Proxy Statement dated February 12, 1982, filed pursuant to Regulation 14A, File No. 1-4003). 10.7 ERISA Excess Benefit Plan for Dresser Industries, Inc. as amended and restated effective June 1, 1995. (Incorporated by reference to Exhibit 10.7 to Registrant's Form 10-K for the year ended October 31, 1995). 10.8 ERISA Compensation Limit Benefit Plan for Dresser Industries, Inc., as amended and restated effective June 1, 1995. (Incorporated by reference to Exhibit 10.8 to Registrant's Form 10-K for the year ended October 31, 1995). 10.9 Supplemental Executive Retirement Plan of Dresser Industries, Inc., as amended and restated effective June 1, 1995. (Incorporated by reference to Exhibit 10.9 to Registrant's Form 10-K for the year ended October 31, 1995). 10.10 Dresser Industries, Inc. Deferred Compensation Plan for Non-employee Directors, as amended. (Incorporated by reference for Exhibit 10(n) to Registrant's Form 10-K/A for the year ended October 31, 1992). 10.11 Dresser Industries, Inc. 1989 Restricted Incentive Stock Plan. (Incorporated by reference to Exhibit A to Registrant's Proxy Statement dated February 10, 1989, filed pursuant to Regulation 14A, File No. 1-4003). 10.12 Dresser Industries, Inc. 1989 Director Retirement Plan, as amended by restatement effective July 15, 1993. (Incorporated by reference to Exhibit 10.16 to Registrant's Form 10-K for the year ended October 31, 1993). 10.13 Form of Election for Deferral of Awards pursuant to the Dresser Industries, Inc. 1989 Director Retirement Plan. (Incorporated by reference to Exhibit 10.17 to Registrant's Form 10-K for the year ended October 31, 1993). - ----------- * Filed Herewith INDEX TO EXHIBITS (CONT.) EXHIBIT DESCRIPTION - ------- ----------- 10.14 The M. W. Kellogg Company Retirement Plan, as amended and restated effective January 1, 1989. (Incorporated by reference to Exhibit 10.15 to Registrant's Form 10-K for the year ended October 31, 1995). 10.15 Long Term Performance Plan for Selected Employees of The M. W. Kellogg Company. (Incorporated by reference to Exhibit 10(r) to Registrant's Form 10-K for the year ended October 31, 1991). 10.16 Annual Incentive Plan for Selected Employees of The M. W. Kellogg Company. (Incorporated by reference to Exhibit 10(s) to Registrant's Form 10-K for the year ended October 31, 1991). 10.17 Dresser Industries, Inc. 1992 Stock Compensation Plan. (Incorporated by reference to Exhibit A to Registrant's Proxy Statement dated February 7, 1992, filed pursuant to Regulation 14A, File No. 1-4003). 10.18 Amendments No.1 and 2 to Dresser Industries, Inc. 1992 Stock Compensation Plan. (Incorporated by reference to Exhibit A to Registrant's Proxy Statement dated February 6, 1995, filed pursuant to Regulation 14A, File No. 1-4003). 10.19 Dresser-Rand Company Pension Plan. (Incorporated by reference to Exhibit 10(y) to Registrant's Form 10-K for the year ended October 31, 1992). 10.20 Dresser Industries, Inc. Deferred Savings Plan. (Incorporated by reference to Exhibit 10(z) to Registrant's Form 10-K for the year ended October 31, 1992). 10.21 The M. W. Kellogg Company Executive Benefits Program. (Incorporated by reference to Exhibit 10.26 to Registrant's Form 10-K for the year ended October 31, 1994). 10.22 Dresser Industries, Inc. 1995 Executive Incentive Compensation Plan. (Incorporated by reference to Exhibit B to Registrant's Proxy Statement dated February 6, 1995, filed pursuant to Regulation 14A, File No. 1-4003). 10.23 Dresser Industries, Inc. Retirement Savings Plan - A as adopted effective June 1, 1995. (Incorporated by reference to Exhibit 10.24 to Registrant's Form 10-K for the year ended October 31, 1995). 10.24 Agreement with John Gavin (Incorporated by reference to Exhibit 10 to Registrant's Form 10-Q/A for the quarter ended April 30, 1996). - ----------- * Filed Herewith INDEX TO EXHIBITS (CONT.) EXHIBIT DESCRIPTION - ------- ----------- *10.25 Agreement with John Gavin for the period November 1, 1996- January 31, 1997. *10.26 Special 1997 Restricted Incentive Stock Grant. *21 Subsidiaries of Registrant at October 31, 1996. *23 Consent of Price Waterhouse LLP. *24 Powers of Attorney. *27 Financial Data Schedule. - ----------- * Filed Herewith EX-3.2 2 BY LAWS BY-LAWS OF DRESSER INDUSTRIES, INC. ARTICLE I SECTION 1. PRINCIPAL OFFICE IN DELAWARE. The principal office shall be in the City of Wilmington, County of New Castle, and the name of the resident agent in charge thereof is the Corporation Service Company, 1013 Centre Road, Wilmington, Delaware 19805. SECTION 2. OTHER OFFICES. The Company may also have offices at such other places, either within or without the State of Delaware, as the Board of Directors may from time to time appoint or as the business of the Company may require. ARTICLE II SECTION 1. ANNUAL MEETING OF SHAREHOLDERS. The Annual Meeting of Shareholders of the Company shall be held at the principal office of the Company, Dallas, Texas, or at such other place within or without the State of Texas at such time and on such date in the months of March, April or May of each year as the Directors may determine. In the absence of a determination by the Directors, the Annual Meeting of Shareholders shall be held at the principal office of the Company, Dallas, Texas at 10:00 a.m. on the third Thursday in March of each year, if not a legal holiday or, if a legal holiday, then on the next succeeding business day. The Directors shall be elected at the Annual Meeting and such other business transacted as may properly be brought before the meeting. SECTION 2. SPECIAL MEETINGS OF SHAREHOLDERS. Special meetings of the shareholders for any purpose or purposes may be called at any time by the Chairman of the Board, the Vice Chairman or the President or a majority of the Board of Directors, and each such special meeting unless another place is designated by a resolution of the Board of Directors, shall be held at the office of the Company in Dallas, Texas. At any time, upon written request of any person entitled to call a special meeting, it shall be the duty of the Secretary to call such special meeting of the shareholders to be held at such time as the Secretary may fix. The call of said special meeting shall state the time and place of said meeting if said meeting is to be held at some place other than the office of the Company, and the purpose or purposes of the proposed meeting. 1 SECTION 3. NOTICE OF MEETINGS OF SHAREHOLDERS. Written or printed notice of the time, place and purpose or purposes of the Annual Meetings and of each special meeting of the shareholders shall be given by or at the direction of the person authorized to call the meeting to each shareholder of record entitled to vote at the meeting, at his last known address as the same appears upon the books of the Company, not more than sixty (60) days prior to the date of the meeting. It shall also be the duty of the Secretary to provide for any further or additional notice that may be required by law. When a meeting is adjourned, it shall not be necessary to give any notice of the adjourned meeting or of the business to be transacted at an adjourned meeting other than by announcement at the meeting at which such adjournment is taken. SECTION 4. QUORUM. At any meeting of the shareholders, the presence in person or by proxy of the holders of a majority of the outstanding shares entitled to vote at such meeting shall constitute a quorum for all purposes, unless otherwise provided by these By-Laws, the Certificate of Incorporation or by law. The shareholders present at a duly organized meeting can continue to do business until adjournment notwithstanding the withdrawal of enough shareholders to leave less than a quorum. If a meeting cannot be organized because a quorum has not attended, those present may, except as otherwise provided by law, adjourn the meeting to such time and place, without further notice, as they may determine, but in the case of any meeting called for the election of Directors, those who attend the second of such adjourned meetings, although less than a quorum as fixed in this section of the By-Laws or in the Certificate of Incorporation, shall nevertheless constitute a quorum for the purpose of electing Directors. SECTION 5. ORGANIZATION. Meetings of the shareholders shall be called to order by the Chairman of the Board or in his absence by the Vice Chairman or in the absence of both by the President of the Company. Such person shall act as Chairman of the meeting or, in the absence of the Chairman of the Board, the Vice Chairman and the President or with the consent of each of them if present in person, the meeting may elect any shareholder present or the duly authorized proxy of any shareholder to act as Chairman of the meeting. The Secretary of the Company or, in his absence, any Assistant Secretary in attendance, shall act as Secretary of all meetings of shareholders, but if neither the Secretary nor any Assistant Secretary be present thereat the presiding officer may appoint any person to act as Secretary of the meeting and to keep the record of the proceedings. SECTION 6. INSPECTORS OF ELECTION. Three Inspectors of Election may be appointed by the Board of Directors before or at each meeting of the shareholders of the Company at which an election of Directors shall take place. If no such appointment shall have been made, or if the Inspectors appointed by the Board of Directors shall refuse to act or fail to attend, then the appointment shall be made by the presiding officer at the meeting. The Inspectors shall receive and take in charge all proxies and ballots, and shall decide all questions concerning the qualification of voters, the validity of 2 proxies, the acceptance and rejection of votes, and shall count the votes cast and shall make a report of the results thereof to the meeting and make such reports to the presiding officer with respect to the foregoing as he may request. SECTION 7. ORDER OF BUSINESS. The order of business at all meetings of shareholders, unless otherwise determined by a vote of the holders of a majority of the shares entitled to vote at said meeting present in person or represented by proxy, shall be determined by the presiding officer. SECTION 8. VOTING. Except as otherwise provided in the Certificate of Incorporation, every shareholder of record shall have the right at every shareholders' meeting to one (1) vote for every share standing in his name on the books of the Company. Every shareholder may vote either in person or by proxy. Every proxy shall be executed in writing by the shareholder or by his duly authorized attorney-in- fact and filed with the Secretary of the Company. The proxy, unless coupled with an interest, shall be revocable at will, notwithstanding any other agreement or any provision in the proxy to the contrary, but the revocation of the proxy shall not be effective until written notice thereof has been given to the Secretary of the Company. No unrevoked proxy may be voted on after three (3) years from the date of its execution unless the proxy provides for a longer period. A proxy shall not be revoked by the death or incapacity of the maker unless before the vote is counted or the authority is exercised, written notice of such death or incapacity is given to the Secretary of the Company. A shareholder shall not sell his vote or execute a proxy to any person for any sum of money or anything of value. The stock transfer books of the Company shall be the evidence of the ownership of the shares of stock for the purpose of voting. All elections shall be held and all questions shall be decided by a plurality vote, except as otherwise required by these By-Laws, the Certificate of Incorporation or by law. SECTION 9. VOTING LISTS. The agent having charge of the transfer books for the shares of this Company shall make, at least ten (10) days before each election of Directors, a complete list of the shareholders entitled to vote at said election, arranged in alphabetical order, with the address of, and the number of shares held by each, which list shall be open at the place where said election is to be held for ten (10) days and shall be subject to inspection by any shareholder of the Company during usual business hours. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder during the whole time of the Meeting. The original share ledger or transfer book or duplicates thereof shall be the only evidence as to who are shareholders entitled to examine such list or share ledger or transfer book or to vote in person or by proxy at any meeting of the shareholders. 3 ARTICLE III DIRECTORS SECTION 1. NUMBER AND TERM OF OFFICE. The business and affairs of the Company shall be managed by or under the direction of a Board of Directors, twelve (12) in number, which number may be altered from time to time by amendment of these By-Laws, but the said number shall never be less than three (3). Said Directors need not be shareholders. SECTION 2. ELECTION OF DIRECTORS. The Directors shall be elected by the shareholders at the annual meeting of said shareholders and shall hold their offices until their successors are elected and qualified in their stead. Vacancies in the Board of Directors, from any cause whatsoever, including any increase in the number of Directors, shall be filled by a majority of the remaining members of the Board, though less than a quorum, and each person so elected shall be a Director until his successor is elected by the shareholders, who may make such selection at the next annual meeting of the shareholders or at any special meeting called for that purpose and held prior thereto. All elections of Directors shall be by ballot. SECTION 3. PLACE OF MEETINGS. The meetings of the Board of Directors shall be at such place, within or without the State of Delaware, as the majority of the Directors may from time to time appoint or as may be designated in the notice calling the meeting. SECTION 4. ORGANIZATION MEETING OF THE BOARD. After each annual election of Directors, the newly elected Directors shall meet for the purpose of organization, the election and appointment of officers, and the transaction of such other business at such time and place as shall be fixed by the written consent of a majority of the Directors or as shall be specified in the notice given hereinafter provided for special meetings of the Board of Directors. SECTION 5. REGULAR MEETINGS. Regular meetings of the Board of Directors shall be held at such times and places as the Board of Directors shall from time to time designate, and the Board in fixing the time and place of such meetings may provide that no notice thereof shall be necessary. SECTION 6. SPECIAL MEETINGS. Special meetings of the Board of Directors shall be held whenever called by the Chairman of the Board or the Vice Chairman or the President or by a majority of the Directors or a majority of the Executive Committee for the time being in office. Special meetings of the 4 Board of Directors shall be held at such times and places as shall be set forth in the call of the meeting. SECTION 7. NOTICE OF DIRECTORS' MEETINGS. The Secretary of the Company shall give notice to each Director of each regular or special meeting by mailing the same at least two (2) days before the meeting to his last known address, or by telegraphing or telephoning the same not less than one (1) day before the meeting, which notice shall state the time and place and general purpose or purposes of the meeting. No notice of any meeting shall be necessary if every Director shall be either present or shall have consented thereto by letter, cablegram, radiogram or telegram. If at any meeting there is less than a quorum, a majority of those present at such meeting may adjourn the same. When a meeting is adjourned, it shall not be necessary to give any notice of the adjourned meeting or of the business to be transacted at an adjourned meeting other than by an announcement at the meeting at which such adjournment is taken. SECTION 8. QUORUM. One-Third (1/3) of the Directors in office shall constitute a quorum for the transaction of business, and the acts of a majority of the Directors present at a meeting at which a quorum is present shall be the acts of the Board of Directors. SECTION 9. ORDER OF BUSINESS. The order of business at all meetings of the Board of Directors, unless otherwise determined by the affirmative vote of a majority of the members present at any meeting, shall be determined by the presiding officer. SECTION 10. COMPENSATION OF THE DIRECTORS. The Directors may receive a stated compensation for their services as Directors, and by resolution of the Board a fixed fee and the expenses incident to attendance at each meeting of the Board or any Committee thereof may be determined. Nothing herein contained shall be construed to preclude any Director from serving the Company in any other capacity as an officer, agent or otherwise and receiving compensation therefor. SECTION 11. ACTION WITHOUT A MEETING. Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any Committee thereof may be taken without a meeting, if prior to such action a written consent thereto is signed by all members of the Board or of such Committee, as the case may be, and such written consent is filed with the minutes of proceedings of the Board or Committee. 5 ARTICLE IV EXECUTIVE COMMITTEE SECTION 1. NUMBER. The Company may have an Executive Committee appointed by the Board of Directors which shall consist of at least three (3) members and shall be made up of members of the Board of Directors. The Board of Directors may designate one of the members thereof as Chairman of the Executive Committee. SECTION 2. VACANCIES. Vacancies occurring in the Executive Committee for any cause may be filled at any meeting of the Board of Directors. SECTION 3. EXECUTIVE COMMITTEE TO REPORT TO BOARD. All actions by the Executive Committee shall be reported to the Board at its meeting next succeeding such action and shall be subject to revision or alteration by the Board; provided, however, that rights of third parties shall not be affected by any revision or alteration. SECTION 4. PROCEDURE. The Executive Committee shall fix its own rules of procedure and shall meet where and as provided by such rules or by resolution of the Board. The presence of a majority shall be necessary to constitute a quorum for the transaction of business and in every case an affirmative vote by a majority of all of the members of the Committee present shall be necessary. SECTION 5. POWERS. During the intervals between the meetings of the Board of Directors, the Executive Committee shall possess and may exercise the power and authority to declare dividends and all other powers of the Board in the management and direction of the business and the conduct of the affairs of the Company in such manner as the Executive Committee shall deem for the best interests of the Company in all cases where specific direction shall not have been given by the Board, and shall have power to authorize the seal of the Company to be affixed to all instruments and documents which may require it. ARTICLE V OTHER COMMITTEES From time to time the Board of Directors may appoint any other committee or committees for any lawful purposes whatsoever, which shall have such powers as shall be specified in the resolution of appointment. 6 ARTICLE VI OFFICERS SECTION 1. EXECUTIVE AND OTHER OFFICERS. The officers of the Company shall include a Chairman of the Board, a President, a Treasurer and a Secretary, all of whom shall be elected by the Board of Directors. The Board may also elect a Vice Chairman. Other than the Chairman of the Board, the Vice Chairman and the President, it shall not be necessary for officers of the Company to be Directors. The Board of Directors shall have authority from time to time to elect or appoint one or more Vice Presidents, any one or more of whom may be designated Executive Vice Presidents or Senior Vice Presidents, a General Counsel, a Controller, one or more Assistant Secretaries and one or more Assistant Treasurers. Any person may fill one or more offices, except the offices of President and Secretary. The Board of Directors may appoint such other agents of the Company as it may deem necessary for the transaction of the business of the Company and prescribe their several duties, or may by resolution authorize the Chairman of the Board or the President or any Vice President to appoint agents of the Company and to prescribe the duties of agents so appointed by them. All agents appointed pursuant to such authorization may be removed by any of the persons so designated. All officers and agents elected or appointed by the Board of Directors shall be subject to removal by the Board at any time, with or without cause. The Board of Directors shall fix the compensation to be paid to the officers and agents of the Company elected or appointed by the Board and take from them such bonds with security for the discharge of their duties and responsibilities as the Directors may see fit. All vacancies among the officers from any cause whatsoever shall be filled by the Board of Directors. SECTION 2. ELECTION OF OFFICERS. A Chairman of the Board of Directors, a President, a Secretary and a Treasurer shall be elected by the Directors of the Company at their first meeting after the annual meeting of the Shareholders. SECTION 3. THE CHAIRMAN OF THE BOARD. The Chairman of the Board shall be the Chief Executive Officer of the Company. He shall preside at all meetings of the shareholders and of the Board of Directors. He shall also preside at all meetings of the Executive Committee if the position of Chairman of the Committee shall be vacant or at any such meetings from which the Chairman of the Executive Committee is absent. Subject to the direction of the Board of Directors and the Executive Committee, the Chairman of the Board shall have general charge of the business and affairs of the Company. He shall also do and perform such other duties as from time to time may be assigned to him by the Board of Directors or by the Executive Committee. SECTION 4. THE VICE CHAIRMAN OF THE BOARD. The Vice Chairman of the Board, if there be one, shall preside at meetings of shareholders and of the Board of Directors from which the Chairman of the Board is absent. He shall also 7 do and perform such other duties as from time to time may be assigned to him by the Board of Directors, by the Executive Committee or by the Chairman of the Board. SECTION 5. THE PRESIDENT. The President shall preside at all meetings of the Board of Directors and of the shareholders if the offices of Chairman of the Board and Vice Chairman shall be vacant or at any such meetings from which the Chairman of the Board and the Vice Chairman are absent. Subject to the direction of the Board of Directors, the Executive Committee and the Chairman of the Board, he shall have general charge of those operations of the Company as assigned by the Chairman of the Board. He shall also do and perform such other duties as from time to time may be assigned to him by the Board of Directors, the Executive Committee or the Chairman of the Board. SECTION 6. VICE PRESIDENT. The Vice President or Vice Presidents, in the event there is more than one, shall do and perform such duties as from time to time may be assigned to him or them by the Board of Directors, the Executive Committee, the Chairman of the Board or the Vice Chairman or the President. SECTION 7. SECRETARY. The Secretary shall keep minutes of all proceedings of the Board and of the Executive Committee and the minutes of all meetings of shareholders in books provided for that purpose. He shall attend to the giving and serving of all notices for the Company; he shall have charge of such books and papers as the Board may direct; he shall have custody of the seal of the Company and shall affix the same to any instrument or document which requires the seal of the Company, and he shall in general perform all duties incident to the office of Secretary, subject to the control of the Board. He shall also perform such other duties as may be assigned to him by the Board. SECTION 8. TREASURER. Subject to the direction of the Vice President and Chief Financial Officer, the Treasurer shall have custody and control of all of the funds and securities of the Company, shall be responsible for all moneys and other property of the Company in his custody and shall perform all duties incident to the office of Treasurer. He shall do and perform such other duties as may from time to time be assigned to him by the Vice President - Chief Financial Officer. If required by the Board, he shall give a bond for the faithful discharge of his duties in such sum as the Board may require. SECTION 9. GENERAL COUNSEL. The General Counsel shall do and perform such duties as from time to time may be assigned to him by the Board of Directors, the Executive Committee, the Chairman of the Board, the Vice Chairman or the President. 8 SECTION 10. CONTROLLER Subject to the direction of the Vice President and Chief Financial Officer, the Controller, if there be one, shall serve as Chief Accounting Officer of the Company and shall perform all duties incident to the office of Contoller. He shall do and perform such other duties as may from time to time be assigned to him by the Vice President and Chief Financial Officer. ARTICLE VII CAPITAL STOCK SECTION 1. SHARE CERTIFICATES. Every holder of stock of this Company shall be entitled to have a certificate signed by or in the name of the Company by the Chairman or Vice Chairman of the Board of Directors or the President or a Vice President and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the Company and sealed with the corporate seal, which seal may be facsimile engraved or printed, certifying the number of shares owned by such holder in the Company. Any of or all the signatures on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Company with the same effect as if he or she were such officer, transfer agent, or registrar at the date of issue. The certificates of stock of the Company shall be in such form as shall be approved by the Board. Such certificates shall be successive in number and the names and addresses of all persons owning shares of capital stock of the Company with the number of shares owned by each and the date or dates of issue of the shares of stock held by each, shall be entered on the books kept for that purpose by the proper agents of the Company. The Company shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof, and accordingly shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it has actual or other notice thereof. SECTION 2. OLD CERTIFICATES TO BE CANCELLED. Except in case of lost, stolen or destroyed certificates, and in that case only after conforming to the requirements hereinafter provided, no new certificates shall be issued until the former certificate for the shares represented thereby shall have been surrendered and cancelled. Any person claiming a certificate of stock to be lost, stolen or destroyed shall make an affidavit of that fact and shall furnish to the Company and/or its Transfer Agent or Agents, Registrar or Registrars, a Bond of Indemnity with one (1) or more sureties in an amount satisfactory to the Board of Directors. The affidavit and Bond of Indemnity shall be in such form and said Bond shall have such surety or sureties as the Board of Directors may require; 9 provided, however, that the Board of Directors may authorize officers of the Company to approve the form of the affidavit and Bond of Indemnity and the sufficiency of the surety or sureties thereon. Upon the furnishing and approval of said affidavit and Bond of Indemnity, a new certificate may be issued of the same tenor and for the same number of shares as the one alleged to be lost, stolen or destroyed. In the event such lost, stolen or destroyed certificate shall represent five (5) or less shares of the Common Stock of the Company, the Board of Directors may, in its discretion, accept a personal indemnity bond in a form satisfactory to the Board of Directors, in lieu of the Bond of Indemnity hereinabove referred to. If required by the Board, a final order or decree of a court of competent jurisdiction of the right of any such person to receive a new certificate shall be procured. SECTION 3. TRANSFER OF SHARES OF STOCK. Shares of stock shall be transferred only on the books of the Company by the holder thereof or by his attorney thereunto duly authorized upon the surrender and cancellation of certificates for a like number of shares, subject, however, to all payments due or to become due thereon. SECTION 4. REGULATIONS. The Board of Directors may make such regulations as it may deem expedient concerning the issue, transfer and registration of stock. SECTION 5. TRANSFER AGENT AND REGISTRAR. The Board of Directors may appoint a Transfer Agent or Transfer Agents to make, and a Registrar or Registrars to record, transfers of shares. SECTION 6. FIXING CLOSING DATES. The Board of Directors may fix in advance a date not exceeding sixty (60) days preceding the date of any meeting of shareholders, or the date fixed for the payment of any dividend or distribution, or the date for the allotment of rights, or the date when any change or conversion or exchange of shares will be made or go into effect, as a record date for the determination of the shareholders entitled to notice of, and to vote at, any such meeting, or any adjournment thereof, or entitled to receive payment of any such dividend or distribution, or to receive any such allotment of rights, or to exercise the rights in respect to any such change, conversion, or exchange of shares, or in connection with the obtaining of the count of the shareholders for any purpose. In such case, only such shareholders as shall be shareholders of record on the date so fixed shall be entitled to notice of, and to vote at, such meeting, or any adjournment thereof, or to receive payment of such dividend, or to receive such allotment of rights, or to exercise such rights or give such consents, as the case may be, notwithstanding any transfer of any shares on the books of the Company after any record date fixed, as aforesaid. The Board of Directors may close the books of the Company against transfer of shares during the whole or any part of such period, and, in such case, written or printed notice thereof shall be mailed at least ten (10) days before the closing thereof to each shareholder of record at the address appearing on the records of the Company or supplied by him to the Company for the purpose of notice. While the stock transfer books of the Company are closed, no transfer of shares shall be made thereon. In the event that the 10 Board of Directors shall not in advance of a meeting of shareholders have closed the transfer books, or have fixed a record date for the determination of the shareholders entitled to notice of or to vote at any meeting of the shareholders, no shares of stock, which have been transferred on the books of the Company within twenty (20) days next preceding such meeting, shall be entitled to notice or shall be voted at any such meeting. ARTICLE VIII BOARD TO DECLARE DIVIDENDS Subject to the provisions of the Certificate of Incorporation and of the laws of the State of Delaware, the Board of Directors, in its discretion, from time to time may declare stock dividends and cash dividends out of any fund legally available therefor as shall appear advisable to the Directors. Such dividends shall be paid at such time after the declaration as the Directors may fix. ARTICLE IX EXECUTION AND SIGNING OF DOCUMENTS Except as otherwise provided by the Board of Directors, deeds, contracts, leases, agreements and other documents shall be signed by the Chairman of the Board, or the Vice Chairman, or the President, or any Vice President and, when a seal is required, sealed with the Company's seal and attested by the Secretary, or any Assistant Secretary, or the Treasurer, or any Assistant Treasurer. Except as otherwise provided by the Board of Directors, promissory notes, debentures and bonds shall be signed by the Chairman of the Board, or the Vice Chairman, or the President, or any Vice President, together with the Treasurer, or any Assistant Treasurer, or Secretary, or any Assistant Secretary. Checks on the Company's bank accounts may be signed by such officer or officers or other agents as the Board of Directors may from time to time authorize or designate, or the Board of Directors may by resolution authorize officers of the Company to designate the agents who may sign checks on the Company's bank accounts. In any case where the signatures of two officers are required on any document or other instrument executed on behalf of the Company, such signatures must be those of two different persons. ARTICLE X MISCELLANEOUS SECTION 1. SEAL. The corporate seal of this Company shall be circular in form and shall bear the name of the corporation and the words "Corporate Seal, Delaware". SECTION 2. INSPECTION OF BOOKS. 11 The Board of Directors shall determine from time to time whether the accounts and books of the Company, or any of them shall be open to the inspection of shareholders, and if permitted, when and under what conditions and regulations the accounts and books of the Company or any of them shall be open to the inspection of shareholders, and the shareholders' rights in this respect shall be restricted and limited accordingly. SECTION 3. NOTICES. Whenever the provisions of the law, the Certificate of Incorporation or these By-Laws require notice to be given to any Director, officer or shareholder, such provision shall not be construed as requiring personal notice, and such notice may be given in writing by depositing the same in a post office or letter box in a post-paid, sealed wrapper addressed to such Director, officer or shareholder at his or her address as the same appears in the books of the Company, and the time when the same shall be mailed shall be deemed to be the time of the giving of such notice. A waiver of any notice in writing signed by a shareholder, Director or officer, whether before or after the time stated in said waiver, shall be deemed equivalent to such notice. ARTICLE XI AMENDMENT The Board of Directors is expressly authorized to make, alter or repeal By-Laws of the corporation, provided, however, that alterations, amendments or repeals of the By-Laws may be made by the holders of a majority of the shares outstanding and entitled to vote at any meeting, if the notice of such meeting contains a statement of the proposed alteration, amendment or repeal. 12 EX-10.25 3 LETTER TO JOHN GAVIN [Dresser Letterhead] October 31, 1996 Mr. John Gavin 10263 Century Woods Drive Los Angeles, CA 90067-6312 Dear Ambassador Gavin: The purpose of this letter is to extend the agreement we previously reached under which you will continue to chair the Dresser Industries de Mexico Advisory Board. 1. The term of this extension is November 1, 1996 through January 31, 1997 and may be renewed for successive yearly periods by mutual written consent. However, this agreement may be terminated at the close of any month by written notice at least ten days prior to the end of the month. 2. During the term of this agreement and any extension, you agree to perform such services for the benefit of Dresser Industries, Inc. as we shall mutually determine from time to time. Pursuant to our prior discussions, these services would generally cover certain areas of the Mexican economy, its business environment, and your expertise regarding business opportunities in Mexico. 3. Your fee will be US $10,000 per quarter paid quarterly in advance. 4. Reimbursement of your travel, lodging and other costs incurred in connection with your services under this agreement shall be made upon presentation of your invoice or statement setting forth such costs. 5. You understand and agree that you are not an agent or employee of Dresser by virtue of this agreement, and accordingly are not eligible for regular group or travel insurance or any other employee benefits. Page 2 of 2 Mr. John Gavin 6. Finally, it is recognized that some of the work you will be called upon to perform hereunder, as well as information furnished you by us in connection therewith, is highly confidential. The Company asks and you agree that any and all such information developed or secured during the performance of services under this agreement shall be considered by you to be confidential and the exclusive property of Dresser and shall not now or at any time hereafter be published, stated, or used by you for any purpose without Dresser's prior written consent. If you agree to perform services as outlined above, please so indicate by signing and returning to me the copy of this letter provided for that purpose. Sincerely, DRESSER INDUSTRIES, INC. By: /s/ W. E. BRADFORD ------------------------------------- William E. Bradford President and Chief Executive Officer Date: 10-31-96 ----------------------------------- ACCEPTED: /s/ JOHN GAVIN - ------------------------------ John Gavin Date: 11-5-96 ------------------------- EX-10.26 4 SPECIAL 1997 RESTRICTED INCENTIVE STOCK GRANT SPECIAL 1997 RESTRICTED INCENTIVE STOCK GRANT ARTICLE I DEFINITIONS Whenever used herein, the following terms shall have the meanings set forth below: SECTION 1.01. APPROVED RETIREMENT. Any termination of employment with the Corporation, with a Subsidiary, or a joint venture organization in which the Corporation has a substantial equity interest, after attainment of age 65 (except termination for cause) or any retirement before age 65 with the approval of the Board. SECTION 1.02 BOARD. The Board of Directors of the Corporation. SECTION 1.03 COMMITTEE. The Executive Compensation Committee of the Board. SECTION 1.04. CORPORATION. Dresser Industries, Inc., a Delaware corporation. SECTION 1.05. DISABILITY OR DISABLED. (1) A physical or mental condition which, in the judgement of the Committee based on competent medical evidence satisfactory to the Committee, including, if required by the Committee, medical evidence obtained by an examination conducted by a physician selected by the Committee, renders an individual unable to engage in any substantial gainful activity for the Corporation, a Subsidiary, or a joint venture organization in which the Corporation has a substantial equity interest, and which impairment is likely to result in death or to be of long continued and indefinite duration, or (2) a judicial declaration of incompetence. SECTION 1.06. ELIGIBLE EMPLOYEES. Chairman and Chief Executive Officer, and President and Chief Operating Officer. SECTION 1.07. SPECIAL 1997 RESTRICTED INCENTIVE STOCK AWARD OR AWARD. A grant described in Article II of the Plan which is made by the Corporation and approved by the Committee under and pursuant to the Plan. SECTION 1.08. RESTRICTED STOCK. Shares of Stock issued pursuant to a Special 1997 Restricted Incentive Stock Award. SECTION 1.09. STOCK. The Common Stock, $0.25 par value, of the Corporation. SECTION 1.10. SUBSIDIARY. A subsidiary of the Corporation or an unincorporated organization controlled, directly or indirectly, by either voting or equity control, by the Corporation, including subsidiaries or unincorporated organizations which may be created or acquired while the Plan is in effect. ARTICLE II GENERAL SECTION 2.01. PURPOSE. The purpose of the Grant is to aid the Corporation in retaining and motivating management employees. This Grant encourages such employees to hold a proprietary interest in the Corporation's success and progress by granting to them shares of Stock in accordance with the terms and conditions set forth below. ARTICLE III RESTRICTED STOCK The Committee grants a Special 1997 Restricted Incentive Stock Award of 30,000 shares to William E. Bradford, and 15,000 shares to Donald C. Vaughn. These Stock Awards shall contain the following terms, conditions and restrictions. SECTION 3.01. RIGHTS WITH RESPECT OF SHARES OF STOCK. From and after the date of issue or transfer of shares of stock awarded to a Participant, the Participant shall have absolute ownership of such Restricted shares, including the right to vote and receive dividends thereon, subject to the terms, conditions, and restrictions described herein. SECTION 3.02. RESTRICTIONS. Until the restrictions imposed on any Restricted Stock shall lapse, such shares (a) shall not be sold, assigned, transferred, pledged, hypothecated, or otherwise disposed of, and (b) shall, if the Participant's continuous employment with the Corporation or any Subsidiary or any joint venture organization in which the Corporation has a substantial equity interest shall terminate for any reason, except as provided in Section 3.05, be returned to the Corporation forthwith, and all the rights of the Participant to such shares shall immediately terminate. If the Participant's interests in the Restricted Stock granted pursuant to a Restricted Incentive Stock Award shall be terminated, such Participant shall forthwith deliver or cause to be delivered to the Secretary or any Assistant Secretary of the Corporation the certificate(s), if any, previously delivered to the Participant for such shares of Stock accompanied by such endorsement(s) and/or instrument(s) of transfer as may be required by the Secretary or any Assistant Secretary of the Corporation. SECTION 3.03. LAPSE OF RESTRICTIONS. Except as set forth in Sections 3.05 and 3.06, the restrictions imposed on any Restricted Stock shall lapse on November 21, 1999. SECTION 3.04. TERMINATION OF EMPLOYMENT BY REASON OF DEATH, DISABILITY, OR APPROVED RETIREMENT. Any provisions of Section 3.03 to the contrary notwithstanding, if the employment of a Participant who has been in the continuous employment of a Corporation since the date of grant of a Restricted Incentive Stock Award to such Participant shall be terminated as a result of Death, Disability, or Approved Retirement, then the restrictions imposed on any Restricted Incentive Stock Award shall lapse as to all shares of Restricted Stock issued to such Participant pursuant to such Restricted Incentive Stock Award on the date of such event. SECTION 3.05. CHANGE IN CONTROL. In the event of a Change in Control of the Corporation, all restrictions on outstanding Restricted Stock shall immediately lapse. For purposes of this Plan, a Change in Control shall occur if any of the following occurs. (a) any person (as defined in Sections 13(d) and 14(d) of the Exchange Act) shall become the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing 30% or more of the combined voting power of the Corporation's then outstanding securities. (b) there shall be consummated: (i) any consolidation or merger of the Corporation in which the Corporation is not the continuing or surviving corporation or pursuant to which shares of the Corporation's Stock would be converted into cash, securities or other property, other than a merger of the Corporation in which the holders of the Corporation's Stock immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger, or (ii) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Corporation. (c) the stockholders of the Corporation approve a plan or proposal for the liquidation or dissolution of the Corporation, or (d) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board and any new director whose election by the Board or nomination for election by the Corporation's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof. Provided, however, that none of the foregoing events shall be deemed to be a Change in Control if the event or events shall have been determined by the affirmative vote of a least a majority of the members of the Board in office immediately prior to such event or events not to be a Change in Control for purposes of the Plan. SECTION 3.06. AGREEMENT BY PARTICIPANT REGARDING WITHHOLDING TAXES. Each Participant granted a Restricted Incentive Stock Award shall be subject to the following rules (as modified by the provisions of Section 3.08). (a) no later than the date as to which the restrictions imposed on any issued Restricted Stock shall lapse, such Participant must pay to the Corporation, any federal, state or local taxes of any kind required by law to be withheld with respect to the Restricted Stock, and (b) the Corporation and its Subsidiaries shall, to the extent permitted by law, have the right to deduct from any payment of any kind otherwise due to the Participant any federal, state or local taxes of any kind required by law to be withhold with respect to the Restricted Stock. SECTION 3.07. ELECTION TO RECOGNIZE GROSS INCOME IN THE YEAR OF ISSUE. If any Participant properly elects within thirty (30) days of the date of issuance of Restricted Stock, to include in gross income for federal income tax purposes an amount equal to the fair market value of the Restricted Stock, such Participant shall pay to the Corporation, in cash or by surrender of stock, any federal, state or local taxes required to be withheld with respect to such shares. If such Participant shall fail to make such payments, the Corporation and its Subsidiaries shall, to the extent permitted by law, have the right to deduct from any payment of any kind otherwise due to the Participant any federal, state or local taxes of any kind required by law to be withheld with respect to Restricted Stock. SECTION 3.08. RESTRICTIVE LEGEND; CERTIFICATES MAY BE HELD IN CUSTODY. Each certificate evidencing Restricted Stock issued pursuant to a Restricted Incentive Stock Award shall bear an appropriate legend referring to the terms, conditions and restrictions described in the Plan. Any attempt to dispose of such shares of Stock in contravention of such terms, conditions and restrictions shall be invalid. EX-21 5 SUBSIDIARIES OF DRESSER Exhibit 21. There is furnished a list of subsidiaries of Dresser Industries, Inc. as of October 31, 1996. See Note (a). STATE OR OTHER % OF VOTING SOVEREIGN POWER SECURITIES UNDER THE LAWS OWNED BY OF WHICH IMMEDIATE NAME ORGANIZED PARENT ---- --------------- ----------- AVA Italiana S.r.L. Italy 100% AVA S.A.R.L. France 100% Baroid Corporation Delaware 100% Baroid Drilling Fluids, Inc. Delaware 100% American Thai Barite Limited Thailand 100% Atlantic Minerals and Products Corporation Florida 100% Sperry-Sun International, Inc. Delaware 78.26%(1) NL do Brazil Ltda. Brazil 100% Sperry-Sun Drilling Services (Cyprus) Ltd. Cyprus 100% Sperry-Sun Saudia Company Limited Saudi Arabia 75%(2) Baroid Drilling Chemical Products Limited Nigeria 60%(2) Nibod Mines Ltd. Nigeria 100% Baroid Industrial Minerals, Inc. Delaware 100% Bentonite Corporation Delaware 100% Baroid International Inc. Delaware 100% Baroid, S.A. de C.V. Mexico 51% NL Baroid (Cameroon) S.A.R.L. Cameroun 100% Baroid Nigeria, Inc. Delaware 100% Baroid of Nigeria Limited Nigeria 60%(2) Baroid Sales Export Corporation Delaware 100% Baroid Trading International, Inc. Nevada 100% Baroid de Venezuela, S.A. Venezuela 99.73%(3) Basin Surveys, Inc. West Virginia 100% Compania Transandina de Exportacion, Inc. Delaware 100% Industrial Reactor Laboratories, Inc. New York 100% Petrotech environmental Services, Inc. Delaware 100% Baroid Drilling Chemical Products Limited Nigeria 60%(2) Baroid Equipment, Inc. California 100% Baroid Equipment Canada, Inc. California 100% SW Servicing, Inc. Delaware 100% Baroid International Trading Corporation Delaware 100% Baroid Australia Pty. Limited Australia 90% Dresser AS Norway 100% Baroid Corporation of Canada Ltd. Canada 100% Baroid Group (Partnership) Canada 54%(4) DB Stratabit (Canada) Ltd. Canada 100% Baroid (Far East) Pte. Ltd. Singapore 100% Baroid International, S.p.A. Italy 100% Security DBS Italia S.r.L. Italy 100% Baroid Pigmina Industrial e Comercial Ltda. Brazil 100% Dresser Industries RUS Russia 100% Baroid S.A.R.L. Tunisia 100% Pacific Petroleum Products, Inc. Delaware 100% Minerales Andinos, S.A. Peru 100% Petroleum Information & Equipment Services Pte. Ltd. Singapore 100% Societe de Developpement de Barytine Morocco 100% Sperry-Sun de Ecuador S.A. Ecuador 100% Baroid Management Company Delaware 100% Baroid Technology, Inc. Delaware 100%
STATE OR OTHER % OF VOTING SOVEREIGN POWER SECURITIES UNDER THE LAWS OWNED BY OF WHICH IMMEDIATE NAME ORGANIZED PARENT ---- --------------- ----------- Canadian Baroid Sales Ltd. Canada 100% DB Stratabit, Inc. Delaware 100% DB Stratabit GmbH Germany 100% DB Stratabit (M.E.) E.C. Bahrain 100% DB Stratabit Pte. Ltd. Singapore 100% DB Stratabit S.A. Belgium 100% DB Stratabit S.A. France 100% DBS-Tunisie Tunisia 100% DB Stratabit S. A. R. L. Tunisia 100% DB Stratabit (USA) Inc. Delaware 100% Xinjiang DB Stratabit Bit and Tool Company Ltd. China 60% Sperry-Sun Drilling Services, Inc. Delaware 100% Cochran-Dean Company Texas 100% Drilling Services International, Inc. Delaware 100% NL Acme Tool, Inc. Delaware 100% Baroid GmbH Germany 100% Sperry-Sun de Venezuela, S.A. Venezuela 100% Tre-Tech, Inc. Delaware 100% Sub Sea International Inc. Delaware 100% Sub Sea do Brasil-Servicos Submarinos Ltda. Brazil 90% (5) Sub Sea International Australia, Inc. Delaware 100% Sub Sea International New Zealand Inc. Delaware 100% Sub Sea Offshore (B) Berhad Brunei 70% Sub Sea Offshore Espana, S.A. Spain 100% Sub Sea Offshore, Inc. Delaware 100% Sub Sea Offshore (Nigeria) Limited Nigeria 100% (6) Sub Sea Overseas, Inc. Panama 100% Sub Sea Underwater Associates, Inc. Delaware 51% Sub Sea Worldwide, Inc. Panama 100% Subtec Middle East Limited Delaware 100% Subtec Marine Services Limited Cyprus 100% Subtec Asia Limited Isle of Man 100% Subtec Laut Sdn. Bhd. Brunei 100% (7) Subtec Middle East Company (Private) Limited Sharjah 100% Subtec Offshore (Sabah) Sdn. Bhd. Malaysia 60% Subtec Off-Shore Support Limited Cyprus 100% Yamado Enterprises Sdn. Bhd. Brunei 100% Wellstream, Inc. Delaware 100% Baroid Middle East, Inc. Delaware 100% (8) DMD Russia, Inc. Delaware 100% Dresser AG Liechtenstein 100% Dresser Anstalt Liechtenstein 100% Dresser Australia Pty. Ltd. Australia 100% Dresser Cameroun S.a.r.L. Cameroun 90% (9) International Oil Field Engineering Ltd. Cayman Islands 51% Magcobar Manufacturing Nigeria Limited Nigeria 60% Dresser (Algeria) Inc. Delaware 100% STATE OR OTHER % OF VOTING SOVEREIGN POWER SECURITIES UNDER THE LAWS OWNED BY OF WHICH IMMEDIATE NAME ORGANIZED PARENT ---- --------------- ----------- Dresser Argentina S.A. Argentina 100% Dresser Canada, Inc. Canada 85% (10) Dresser Ireland Finance Company Ireland 78% (11) Dresser Caspian, Inc. Delaware 100% Dresser Corporation Nevada 100% Dresser Far East, Inc. Delaware 100% Dresser Oil Services Vietnam Limited Vietnam 100% Dresser Foreign Sales Corporation Limited Guam 100% Dresser Holding, Inc. Delaware 100% Dresser International Sales Corporation Delaware 100% Dresser (Holdings) Limited England 59.45% (12) AVA (U.K.) Limited England 100% Sub Sea Offshore (Holdings) Limited England 100% Camera Alive England 100% Sub Sea Offshore Limited England 100% Sub Sea Offshore Holdings Norge A/S Norway 100% Sub Sea Offshore Pte. Ltd. Singapore 100% Baroid Corporation England 99% (13) Baroid Limited England 100% DB Stratabit Limited Scotland 100% Strata Bit Limited Scotland 100% NL Overseas Service Company, Ltd. England 100% Dresser Drilling and Production Services Limited England 100% Russell Attitude Systems, Ltd. England 100% Sperry-Sun (U.K.) Limited England 100% Dresser Acquisitions Limited England 100% North Sea Assets Limited Scotland 100% British Underwater Engineering Limited England 100% Cotiner B.V. Netherlands 100% KD Marine Brazil Brazil 100% KD Marine N.V. Netherlands 100% Bue Ships Ltd. England 100% SubSea HMB Ltd. Scotland 100% HMB Subwork Limited England 100% HMB Subwork De Espania S.A. Spain 100% Improv (UK) Limited Scotland 100% Sub Sea Norge A/S Norway 100% Dresser Group Pension Trustee Limited England 100% Dresser Holmes Limited England 100% B. Thornton Limited England 100% George Street Parade Limited England 100% Holmes Blowers Limited England 100% Vactor Industrial Pollution (U.K.) Limited England 100% Dresser U. K. Limited England 100% British Pleuger Submersible Pumps Limited England 100% LCL Knightsbridge Limited England 100% Studebaker-Worthington (U.K.) Limited England 100% Worthington Pumping Systems Limited England 100% Worthington-Simpson Ltd. England 100%
STATE OR OTHER % OF VOTING SOVEREIGN POWER SECURITIES UNDER THE LAWS OWNED BY OF WHICH IMMEDIATE NAME ORGANIZED PARENT ---- --------------- ----------- Dresser U.K. Pensions Limited England 100% Granherne (Holdings) Ltd England 100% Granherne International (Holdings) Ltd England 65%(14) Granherne Limited England 100% Granherne Inc Texas 100% Granherne Information Systems Limited England 100% Granherne International Limited England 100% Granherne (NZ) Limited New Zealand 100% Granherne Pty Ltd Australia 100% Granherne (S.A.) Pty Ltd Australia 100% Granherne Sdn Bhd Malaysia 100% Kellogg Oil & Gas Services Limited England 100% M.W. Kellogg (Eastern Hemisphere) Limited England 100% M. W. Kellogg Limited England 55% Kellogg Construction Limited England 100% Kellogg Offshore Limited England 100% Kellogg Plant Services Limited England 100% KESA Limited England 100% K.R.S.A. Limited England 100% M.W. Kellogg Group Limited England 100% M. W. Kellogg International Limited England 100% M. W. Kellogg (Pensions) Limited England 100% MWKL Field Services Limited Cayman Islands 100% MWKL Middle East Limited England 100% Mono Group Scotland 99%(13) Mono Group Pension Trustees Limited Scotland 100% Mono Pumps Limited England 100% Mono Pumps (Australia) Pty. Limited Australia 100% Mono Pumps (Engineering) Limited England 100% Mono Pumps (Manufacturing) Limited England 100% Mono Pumps (New Zealand) Limited New Zealand 100% Mono Pumps (U.K.) Limited England 100% W. T. Limited England 100% T. K. Valve Holdings England 99%(13) TK Valve Limited England 100% T K Valve (Abu Dhabi) Limited Scotland 100% T K Valve (Europe) Limited Scotland 100% Tecman Services Limited Cyprus 100% TK Valve (Singapore) Pte. Ltd. Singapore 100% Dresser Industria e Commercio Ltda. Brazil 100% Dresser International, Ltd. Delaware 100% Dresser Investments N.V. Netherlands Antilles 100% Dresser Korea, Inc. Korea 100% Dresser Minerals International, Inc. Texas 100% Dresser-Nagano, Inc. Delaware 71.04% Dresser Oilfield Gabon S.a.r.L. Gabon 95%(15) Dresser Oilfield Services, Inc. Delaware 100% Dresser-Rand Canada, Inc. Canada 51% Dresser-Rand Company (Partnership) New York 51% DRSS Company (Partnership) New York 50% STATE OR OTHER % OF VOTING SOVEREIGN POWER SECURITIES UNDER THE LAWS OWNED BY OF WHICH IMMEDIATE NAME ORGANIZED PARENT ---- --------------- ----------- Dresser-Rand Argentina S.A. Argentina 100% Dresser-Rand C.I. Limited Cayman Islands 100% Dresser-Rand Compression Services, S.A. Switzerland 100% Dresser-Rand Holding Company Delaware 100% Dresser-Rand B.V. Netherlands 100% Dresser-Rand GmbH Germany 100% Dresser-Rand Japan Ltd. Japan 100% Dresser-Rand Overseas Sales Company Delaware 100% Dresser-Rand Company Ltd. England 100% Dresser-Rand (U.K.) Ltd. England 100% Dresser-Rand Sales Company, S.A. Switzerland 100% Dresser-Rand Services S.a.r.L. Switzerland 100% Dresser-Rand de Venezuela S.A. Venezuela 100% Southwest Industries, Inc. Delaware 100% Turbodyne Electric Power Corporation Delaware 100% Dresser-Rand International B.V. Netherlands 100% Dresser-Rand Italia S.r.L. Italy 100% Dresser-Rand Machinery Repair Belgie N.V. Belgium 100% Dresser-Rand de Mexico, S.A. de C.V. Mexico 100% Dresser-Rand Power, Inc. Delaware 100% Dresser-Rand Comercio e Industria Ltda. Brazil 100% Dresser-Rand A/S Norway 100% Dresser-Rand (SEA) Pte. Ltd. Singapore 100% Dresser-Rand S.A. France 100% Dresser-Rand Services B.V. Netherlands 100% Dresser-Rand Czech spol. s r. o. Czechoslovakia 100% Dresser Services, Inc. Delaware 100% Dresser-Shaw Company Canada 50.1% Bredero Price Holding B.V. Netherlands 100% Bredero Price Coaters (Thailand) Limited Thailand 100%(16) Bredero Price Coatings Pty. Ltd. Australia 100% Bredero Price Colombia B.V. Netherlands 100% Bredero Price International B.V. Netherlands 100% Bredero Price International, Inc. Texas 100% Bredero Price (Middle East) Limited Cyprus 100% Bredero Price Services Limited England 100% Bredero Norway B.V. Netherlands 100% Bredero Price Norway A/S Norway 100% British Pipe Coaters Limited England 100% Chalfont Limited Cyprus 100%(17) Kapeq Trading Limited Cyprus 100%(18) SIF-Isopipe S.A. France 100% SIF Overseas Trading Limited Cyprus 100%(17) Uniglobe Engineering Limited Cyprus 100%(19) Primat Limitada Colombia 99.9%(20) Vosnoc Limited Cyprus 100%(17) Shaw Pipe Industries Limited Canada 100% Shaw Industries Pty. Ltd. Australia 100% Shaw International Ltd. Barbados 100% Bredero Shaw Australia Pty. Ltd. Australia 100%
STATE OR OTHER % OF VOTING SOVEREIGN POWER SECURITIES UNDER THE LAWS OWNED BY OF WHICH IMMEDIATE NAME ORGANIZED PARENT ---- --------------- ----------- Thai Pipecoaters Ltd. Thailand 100% Arabian Shaw Pipecoaters (Thailand) Ltd. Thailand 100% Shaw Pipe Protection Limited Canada 100% Dresser South Africa (Pty.) Ltd. South Africa 100% Dresser de Venezuela, C.A. Venezuela 100% Fann Instrument Company Delaware 100% GAZDMD Avtomatika Russia 100% Grove Valve & Regulator Company California 100% Grove Foreign Sales Corporation Barbados 100% M. W. Kellogg-Delaware Inc. Delaware 100% Kellogg Oil & Gas Services, Inc. Delaware 100% Bredero-Shaw, Inc. Delaware 50.1% (21) Bredero Price Company Delaware 100% The M. W. Kellogg Company Delaware 100% Kelbi Ingeniera, S.A. de C.V. Mexico 50% (22) Kellogg Cardon, C.A Venezuela 100% Kellogg Foreign Sales Corporation Barbados 100% Kellogg Pan American, C.A. Venezuela 100% M. W. Kellogg Technology Company Delaware 100% TSKJ II Construcoes Internacionais Sociedade Unipessoal Limitada Portugal 100% TSKJ Nigeria, Limited Nigeria 100% M. W. Kellogg Holdings, Inc. Delaware 100% Conkel, S. de R.L. de C.V. Mexico 100% Intercontinental Services Limited Virgin Islands 100% KCI Constructors, Inc. Delaware 100% KRW Energy Systems, Inc. Delaware 80% Kellogg China Inc. Delaware 100% Kellogg Development Corporation Delaware 100% Kellogg Far East, Inc. Delaware 100% Kellogg Holland B.V. Netherlands 100% Kellogg Continental B.V. Netherlands 100% Kellogg Continental Construction B.V. Netherlands 100% Kellogg Intercontinental Limited Cyprus 100% Kellogg ISL Limited Cayman Islands 100% Kellogg India Limited Delaware 100% Kellogg Indonesia, Inc. Delaware 100% Kellogg International Corporation Delaware 100% Kellogg International Services Corporation Delaware 100% Kellogg International Services Limited Cayman Islands 100% Petroleum and Industrial Maintenance Company Limited Cayman Islands 100% Kellogg Iran, Inc. Delaware 100% Kellogg Italy, Inc. Delaware 100% Kellogg Korea, Inc. Delaware 100% Kellogg Malaysia, Inc. Delaware 100% Kellogg (Malaysia) Sdn. Bhd. Malaysia 100% Kellogg Mexico, Inc. Mexico 100% Kellogg Middle East Limited Delaware 100% Kellogg Middle East Services Inc. Delaware 100%
STATE OR OTHER % OF VOTING SOVEREIGN POWER SECURITIES UNDER THE LAWS OWNED BY OF WHICH IMMEDIATE NAME ORGANIZED PARENT ---- --------------- ----------- Kellogg Nigeria Inc. Delaware 100% Kellogg Overseas Construction Corporation Delaware 100% Kellogg Overseas Corporation Delaware 100% Kellogg Overseas Services Corporation Panama 100% Kellogg Pan American Corporation Delaware 100% Kellogg Plant Services Inc. Delaware 100% Kellogg Rust Services Inc. Delaware 100% Kellogg Rust Synfuels, Inc. Delaware 100% Kellogg Saudi Arabia Limited Delaware 100% Kellogg Services, Inc. Delaware 100% KPA, S.A. de C.V. Mexico 100% Kuwait Kellogg Ltd. Delaware 100% Middle East Technologies, Inc. Delaware 100% M. W. Kellogg Company Limited Canada 100% M. W. Kellogg Constructors Inc. Delaware 100% Pullman Incorporated Capital Corporation Delaware 100% Kellogg Algeria Inc. Delaware 100% Pullman Kellogg Plant Services Algeria, Inc. Delaware 100% Societe Kellogg Delaware 100% Malaysian Barite Sdn. Bhd. Malaysia 100% Masoneilan International, Inc. Delaware 99.1% (23) Dresser B.V. Netherlands 85% (24) Security DBS B.V. Netherlands 100% Dresser Europe S.A. Belgium 100% Ebro-Electronic GmbH Germany 100% (25) Dresser Industrial Products B.V. Netherlands 100% AVA Netherlands B.V. Netherlands 100% Dresser Japan Ltd. Japan 100% Dresser Netherlands B.V. Netherlands 100% Dresser Wayne AB Sweden 100% Dresser Polska Sp z o.o Poland 100% Dresser Produits Industriels France 100% Dresser Congo S.A.R.L. Congo 100% Kellogg France, S.A. France 100% Dresser Oilfield Services B.V. Netherlands 100% Dresser Italia S.p.A. Italy 99% (26) Grove Scandinavia A/S Norway 100% Grove (UK) Limited England 100% Ledeen Italia S.p.A. Italy 100% Dresser Latvia Limited Latvia 100% Dresser Masoneilan Valves Private Limited India 51% (27) Masoneilan HP + HP GmbH Germany 100% Masoneilan Internacional, S.A. de C.V. Mexico 100% Masoneilan S.A. Spain 75% (28) Masoneilan (S.E.A.) Private Limited Singapore 100% Dresser Singapore Pte. Ltd. Singapore 95% (29) Monoflo, Inc. Delaware 100% Nile Oilfield Engineering Limited Sudan 51% P. T. Security Mulia Indonesia Indonesia 70%
STATE OR OTHER % OF VOTING SOVEREIGN POWER SECURITIES UNDER THE LAWS OWNED BY OF WHICH IMMEDIATE NAME ORGANIZED PARENT ---- --------------- ----------- Property and Casualty Insurance, Limited Bermuda 100% Property and Casualty Insurance Ltd. - U.S. Vermont 100% Servicios Industrials Worthington, S.A. Venezuela 100% Symington Wayne Overseas, Ltd. Canada 100% Wayne Pump Company South Africa (Pty.) Ltd. South Africa 100% Triconos Mineros S.A. Chile 100% Wheatley TXT Corp. Delaware 100% Axelson Canada, Inc. Delaware 100% Axelson, Inc. Delaware 100% Axelson Pump Company Delaware 100% Clif Mock Company Delaware 100% Texsteam Inc. Delaware 100% Tom Wheatley Valve Company Delaware 100% Wheatley Corporation Delaware 100% Wheatley Gaso Inc. Delaware 100% Wheatley Pump Incorporated Delaware 100% Worthington Compressores e Turbinas Ltda. Brazil 100% Worthington Corporation Delaware 100% Sociedad Espanola de Bombas y Maquinaria S.A. Spain 100% Worthington do Brasil, Inc. Delaware 100% Ingersoll-Dresser Pumps de Colombia, S.A. Colombia 93% (30)
(a) The names of certain subsidiaries of Registrant have been omitted since the unnamed subsidiaries considered in the aggregate as a single subsidiary would not constitute a significant subsidiary. (1) Remaining 21.74% owned by Sperry-Sun Drilling Services Inc. (2) Shares held in trust by NL Industries, Inc. (3) Remaining .27% held by various individuals. (4) Remaining owned by Canadian Branch of Baroid Equipment Canada, Inc. (30.7%) and by DB Stratabit (Canada) Ltd. (15.3%). (5) Remaining 10% owned by Sub Sea International Australia Inc. (6) Shares held in trust by Seun Oyefess (99%) and Mrs. Olympia Abeka Oyefess (1%). (7) Shares held in trust by Datu Hulubalang Hj Abd Wahab (50%) and Hj Mohd Akib Bin Ghani (50%) for the benefit of Subtec Asia Limited. (8) Shares held for the benefit of Dresser Industries, Inc. However shares have not been subscribed. (9) Remaining 10% owned by Dresser Netherlands B.V. (10) Remaining 15% owned by Wheatley Gaso Inc. (11) Remaining 22% held by Baroid Corporation of Canada, Ltd. (12) Remaining 40.55% held by Sub Sea International, Inc. (22.68%), Baroid International Trading Corporation (17.53%) and Dresser AG (.34%). 100% of issued and preferred voting shares are owned by Dresser Canada, Inc. (13) Remaining 1% held by Dresser Acquisitions Limited. (14) 51% of shares held in trust by Siam One Ltd. (15) Remaining 35% held by Dresser (Holdings) Limited. (16) Remaining 5% owned by Dresser Minerals International, Inc. (17) Shares held in trust by Abacus (Nominees) Limited (99.9%) and Abacus (Cyprus) Limited (.1%). (18) Shares held in trust by Abacus (Cyprus) Limited (50%) and Abacus (Nominees) Limited (50%). (19) Shares held in Trust by Interchange Limited. (20) Remaining 0.1% held by Robert Dick. (21) Remaining 49.9% held by Shaw Resource Services, Inc. (22) Remaining 50% owned by Bufete Industriale, S.A. de C.V. (23) Remaining .9% owned by DB Stratabit, Inc. (24) Remaining 15% owned by Dresser Industries, Inc. 100% issued Class B Shares held by Dresser Anstalt. (25) Shareholding interest actually held by German Branch of Dresser Europe S.A. (26) Remaining 1% owned by Dresser B.V. (27) Remaining 49% held by India Valve Investment Co., Inc. (28) Remaining 25% held by Dresser Produits Industriels. (29) Remaining 5% held by Masoneilan International, Inc. (30) Remaining 7% owned by Dresser Minerals International, Inc. (1.8%); Dresser International, Ltd. (1.8%); Dresser Industries, Inc. (1.7%); Worthington Corporation (1%); and Dresser Holding, Inc. (.7%). EX-23 6 CONSENT OF INDEPENDENT ACCOUNTANTS CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectuses constituting part of the Registration Statements on Form S-3 (Nos. 2-91309, 33-47832, 33-59562, 333-01871, and 333-01303) and the Registration Statements on Form S-8 (Nos. 2-76847, 2-81536, 33-26099, 33-30821, 33-48165, 33-52067, 33-52989, 33-50563, and 33-54099) of Dresser Industries, Inc. of our report dated November 27, 1996 appearing on page 29 of the Annual Report to Shareowners which is incorporated in this Annual Report on Form 10-K. /s/ Price Waterhouse LLP PRICE WATERHOUSE LLP Dallas, Texas January 27, 1997 EX-24 7 POWER OF ATTORNEY POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned Director and/or officer of DRESSER INDUSTRIES, INC., a Delaware corporation (the "Company"), hereby constitutes and appoints REBECCA R. MORRIS and ALICE A. HINDS and each or either of them, his true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, for him and in his name, place and stead, in any and all capacities, to sign Dresser Industries, Inc.'s Annual Report on Form 10-K for the fiscal year ended October 31, 1996, and any and all amendments thereto, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each or either of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and each or either of them, or substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned Director and/or officer of the Company has hereunto set his hand this 16th day of January, 1997. /s/ Samuel B. Casey, Jr. ------------------------------------ Samuel B. Casey, Jr. Director POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned director and/or officer of DRESSER INDUSTRIES, INC., a delaware corporation (the "Company"), hereby constitutes and appoints REBECCA R. MORRIS and ALICE A. HINDS and each or either of them, his true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, for him and in his name, place and stead, in any and all capacities, to sign Dresser Industries, Inc.'s Annual Report on Form 10-K for the fiscal year ended October 31, 1996, and any and all amendments thereto, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each or either of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and each or either of them, or substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned Director and/or officer of the Company has hereunto set his hand this 16th day of January, 1997. /s/ Lawrence S. Eagleburger ------------------------------------ Lawrence S. Eagleburger Director POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned Director and/or officer of DRESSER INDUSTRIES, INC., a Delaware corporation (the "Company"), hereby constitutes and appoints REBECCA R. MORRIS and ALICE A. HINDS and each or either of them, her true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, for her and in her name, place and stead, in any and all capacities, to sign Dresser Industries, Inc.'s Annual Report on Form 10-K for the fiscal year ended October 31, 1996, and any and all amendments thereto, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each or either of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and each or either of them, or substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned Director and/or officer of the Company has hereunto set her hand this 16th day of January, 1997. /s/ Sylvia A. Earle, Ph.D. ------------------------------------ Sylvia A. Earle, Ph.D. Director POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned Director and/or officer of DRESSER INDUSTRIES, INC., a Delaware corporation (the "Company"), hereby constitutes and appoints REBECCA R. MORRIS and ALICE A. HINDS and each or either of them, his true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, for him and in his name, place and stead, in any and all capacities, to sign Dresser Industries, Inc.'s Annual Report on Form 10-K for the fiscal year ended October 31, 1996, and any and all amendments thereto, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each or either of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and each or either of them, or substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned Director and/or officer of the Company has hereunto set his hand this 16th day of January, 1997. /s/ RAWLES FULGHAM ------------------------------ Rawles Fulgham Director POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned Director and/or officer of DRESSER INDUSTRIES, INC., a Delaware corporation (the "Company"), hereby constitutes and appoints REBECCA R. MORRIS and ALICE A. HINDS and each or either of them, his true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, for him and in his name, place and stead, in any and all capacities, to sign Dresser Industries, Inc.'s Annual Report on Form 10-K for the fiscal year ended October 31, 1996, and any and all amendments thereto, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each or either of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and each or either of them, or substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned Director and/or officer of the Company has hereunto set his hand this 16th day of January, 1997. /s/ JOHN A. GAVIN ------------------------------ John A. Gavin Director POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned Director and/or officer of DRESSER INDUSTRIES, INC., a Delaware corporation (the "Company"), hereby constitutes and appoints REBECCA R. MORRIS and ALICE A. HINDS and each or either of them, his true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, for him and in his name, place and stead, in any and all capacities, to sign Dresser Industries, Inc.'s Annual Report on Form 10-K for the fiscal year ended October 31, 1996, and any and all amendments thereto, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each or either of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and each or either of them, or substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned Director and/or officer of the Company has hereunto set his hand this 16th day of January, 1997. /s/ RAY L. HUNT ------------------------------ Ray L. Hunt Director POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned Director and/or officer of DRESSER INDUSTRIES, INC., a Delaware corporation (the "Company"), hereby constitutes and appoints REBECCA R. MORRIS and ALICE A. HINDS and each or either of them, his true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, for him and in his name, place and stead, in any and all capacities, to sign Dresser Industries, Inc.'s Annual Report on Form 10-K for the fiscal year ended October 31, 1996, and any and all amendments thereto, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each or either of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and each or either of them, or substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned Director and/or officer of the Company has hereunto set his hand this 16th day of January, 1997. /s/ J. LANDIS MARTIN ------------------------------ J. Landis Martin Director POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned Director and/or officer of DRESSER INDUSTRIES, INC., a Delaware corporation (the "Company"), hereby constitutes and appoints REBECCA R. MORRIS and ALICE A. HINDS and each or either of them, his true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, for him and in his name, place and stead, in any and all capacities, to sign Dresser Industries, Inc.'s Annual Report on Form 10-K for the fiscal year ended October 31, 1996, and any and all amendments thereto, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each or either of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and each or either of them, or substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned Director and/or officer of the Company has hereunto set his hand this 16th day of January, 1997. /s/ JAY A. PRECOURT ------------------------------ Jay A. Precourt Director POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned Director and/or officer of DRESSER INDUSTRIES, INC., a Delaware corporation (the "Company"), hereby constitutes and appoints REBECCA R. MORRIS and ALICE A. HINDS and each or either of them, his true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, for him and in his name, place and stead, in any and all capacities, to sign Dresser Industries, Inc.'s Annual Report on Form 10-K for the fiscal year ended October 31, 1996, and any and all amendments thereto, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each or either of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and each or either of them, or substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned Director and/or officer of the Company has hereunto set his hand this 16th day of January, 1997. /s/ RICHARD W. VIESER ------------------------------- Richard W. Vieser Director POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned Director and/or officer of DRESSER INDUSTRIES, INC., a Delaware corporation (the "Company"), hereby constitutes and appoints REBECCA R. MORRIS and ALICE A. HINDS and each or either of them, his true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, for him and in his name, place and stead, in any and all capacities, to sign Dresser Industries, Inc.'s Annual Report on Form 10-K for the fiscal year ended October 31, 1996, and any and all amendments thereto, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each or either of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and each or either of them, or substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned Director and/or officer of the Company has hereunto set his hand this 16th day of January, 1997. /s/ WILLIAM E. BRADFORD --------------------------------------- William E. Bradford Chairman of the Board, Chief Executive Officer and Director (Principal Executive Officer) POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned Director and/or officer of DRESSER INDUSTRIES, INC., a Delaware corporation (the "Company"), hereby constitutes and appoints REBECCA R. MORRIS and ALICE A. HINDS and each or either of them, his true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, for him and in his name, place and stead, in any and all capacities, to sign Dresser Industries, Inc.'s Annual Report on Form 10-K for the fiscal year ended October 31, 1996, and any and all amendments thereto, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each or either of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and each or either of them, or substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned Director and/or officer of the Company has hereunto set his hand this 16th day of January, 1997. /s/ GEORGE H. JUETTEN ---------------------------------- George H. Juetten Vice President (Principal Financial Officer) POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned Director and/or officer of DRESSER INDUSTRIES, INC., a Delaware corporation (the "Company"), hereby constitutes and appoints REBECCA R. MORRIS and ALICE A. HINDS and each or either of them, his true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, for him and in his name, place and stead, in any and all capacities, to sign Dresser Industries, Inc.'s Annual Report on Form 10-K for the fiscal year ended October 31, 1996, and any and all amendments thereto, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each or either of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and each or either of them, or substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned Director and/or officer of the Company has hereunto set his hand this 16th day of January, 1997. /s/ LIONEL H. OLMER ----------------------------------- Lionel H. Olmer Director POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned Director and/or officer of DRESSER INDUSTRIES, INC., a Delaware corporation (the "Company"), hereby constitutes and appoints REBECCA R. MORRIS and ALICE A. HINDS and each or either of them, his true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, for him and in his name, place and stead, in any and all capacities, to sign Dresser Industries, Inc.'s Annual Report on Form 10-K for the fiscal year ended October 31, 1996, and any and all amendments thereto, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each or either of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and each or either of them, or substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned Director and/or officer of the Company has hereunto set his hand this 16th day of January, 1997. /s/ DONALD C. VAUGHN ------------------------------- Donald C. Vaughn Director EX-27 8 EXHIBIT 27 FDS
5 1,000 YEAR OCT-31-1996 OCT-31-1996 232,400 0 1,152,100 0 913,600 2,715,100 2,836,700 1,574,300 5,395,800 2,107,400 756,300 46,200 0 0 1,536,000 5,395,800 6,533,200 6,561,500 5,088,100 6,076,200 0 0 60,500 426,800 145,100 257,500 0 0 0 257,500 1.44 1.44
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