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Table of Contents
 
 
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
Form 10-Q
 
x  Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
 
For the quarterly period ended September 30, 2002
 
OR
 
¨  Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
 
For the transition period from              to             
 
Commission File Number 333-60778
 
 
DRESSER, INC.
(Exact name of registrant as specified in its charter)
 
Delaware
  
75-2795365
(State or other jurisdiction
of incorporation or organization)
  
(I.R.S. Employer
Identification No.)
 
15455 Dallas Parkway, Suite 1100
Addison, Texas 75001
(Address of principal executive offices) (zip code)
 
(972) 361-9800
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
Yes x No ¨        
 
The number of shares outstanding of common stock (par value $0.01 per share) as of November 11, 2002 was 1,000.
 

Table of Contents
 
DRESSER, INC.
 
INDEX
 
         
Page No.
    
PART I.    FINANCIAL INFORMATION
     
Item 1.
   
Financial Statements
     
       
3
       
4
       
5
       
6
Item 2.
      
23
Item 3.
      
43
Item 4.
      
45
    
PART II.    OTHER INFORMATION
     
Item 1.
      
45
Item 2.
      
45
Item 4.
      
45
Item 6.
   
Exhibits and Reports on Form 8-K:
     
       
46
       
46
  
47
 

2

Table of Contents
 
PART I.    FINANCIAL INFORMATION
 
Item 1.    Financial Statements
 
DRESSER, INC.
Condensed Consolidated Statements of Operations
(in millions)
(unaudited)
 
    
Three Months Ended
September 30,
     
Nine Months Ended
September 30,
  
    
2002
     
2001
     
2002
     
2001
  
Revenues
   
$
407.0
 
   
$
403.3
 
   
$
1,207.3
 
   
$
1,138.2
 
Cost of revenues
   
 
306.8
 
   
 
280.6
 
   
 
882.9
 
   
 
788.2
 
    
  
  
  
Gross profit
   
 
100.2
 
   
 
122.7
 
   
 
324.4
 
   
 
350.0
 
Selling, engineering, administrative and general expenses and general expenses
   
 
78.7
 
   
 
77.6
 
   
 
235.6
 
   
 
224.7
 
    
  
  
  
Operating income
   
 
21.5
 
   
 
45.1
 
   
 
88.8
 
   
 
125.3
 
Interest expense
   
 
(22.0
)
   
 
(25.9
)
   
 
(80.1
)
   
 
(46.4
)
Interest income
   
 
0.9
 
   
 
1.6
 
   
 
2.0
 
   
 
3.0
 
Other (deductions) income, net
   
 
(1.8
)
   
 
3.2
 
   
 
—  
 
   
 
(0.3
)
    
  
  
  
(Loss) income before taxes
   
 
(1.4
)
   
 
24.0
 
   
 
10.7
 
   
 
81.6
 
Provision for income taxes
   
 
—  
 
   
 
(12.9
)
   
 
(4.6
)
   
 
(32.3
)
    
  
  
  
Net (loss) income
   
$
(1.4
)
   
$
11.1
 
   
$
6.1
 
   
$
49.3
 
    
  
  
  
 
See accompanying notes to condensed consolidated financial statements

3

Table of Contents
 
DRESSER, INC.
Condensed Consolidated Balance Sheets
(in millions, except share information)
(unaudited)
ASSETS
   
September 30, 2002
     
December 31, 2001
  
Current assets:
                  
Cash and equivalents
   
$
92.6
 
   
$
97.2
 
Receivables, net
   
 
320.3
 
   
 
316.2
 
Inventories, net
   
 
304.1
 
   
 
328.3
 
Other current assets
   
 
14.7
 
   
 
10.4
 
    
  
Total current assets
   
 
731.7
 
   
 
752.1
 
Property, plant and equipment, net
   
 
215.2
 
   
 
235.9
 
Investments in unconsolidated subsidiaries
   
 
7.5
 
   
 
4.8
 
Long-term receivables and other assets
   
 
66.0
 
   
 
86.8
 
Deferred tax assets
   
 
96.9
 
   
 
95.6
 
Goodwill, net
   
 
428.3
 
   
 
408.7
 
Intangibles, net
   
 
6.2
 
   
 
5.8
 
    
  
Total assets
   
$
1,551.8
 
   
$
1,589.7
 
    
  
LIABILITIES AND SHAREHOLDERS’ DEFICIT
              
                   
Current liabilities:
                  
Accounts and notes payable
   
$
210.2
 
   
$
245.3
 
Contract advances
   
 
5.5
 
   
 
10.5
 
Accrued expenses
   
 
160.3
 
   
 
137.2
 
    
  
Total current liabilities
   
 
376.0
 
   
 
393.0
 
Pension and other retiree benefits
   
 
195.6
 
   
 
214.3
 
Long-term debt
   
 
964.8
 
   
 
1,000.0
 
Other liabilities
   
 
33.1
 
   
 
26.0
 
Commitments and contingencies
                  
    
  
Total liabilities
   
 
1,569.5
 
   
 
1,633.3
 
Shareholders’ deficit:
                  
Common stock, $0.01 par value; issued and outstanding: 1,000 in 2002 (See Note 2)
   
 
—  
 
   
 
—  
 
Common stock, $0.001 par value; issued and outstanding:
10,488,222 class A and 909,486 class B in 2001
   
 
—  
 
   
 
—  
 
Capital in excess of par value
   
 
455.1
 
   
 
455.9
 
Accumulated deficit
   
 
(451.6
)
   
 
(466.9
)
Accumulated other comprehensive loss
   
 
(21.2
)
   
 
(32.6
)
    
  
Total shareholders’ deficit
   
 
(17.7
)
   
 
(43.6
)
    
  
Total liabilities and shareholders’ deficit
   
$
1,551.8
 
   
$
1,589.7
 
    
  
 
See accompanying notes to condensed consolidated financial statements

4

Table of Contents
 
DRESSER, INC.
Condensed Consolidated Statements of Cash Flows
(in millions)
(unaudited)
 
    
Nine Months Ended
September 30,
  
    
2002
     
2001
  
Cash flows from operating activities:
                  
Net income
   
$
6.1
 
   
$
49.3
 
Adjustments to reconcile net income to cash flow provided by operating activities:
                  
Depreciation and amortization
   
 
32.7
 
   
 
40.6
 
Equity earnings of unconsolidated affiliates
   
 
(2.5
)
   
 
(1.4
)
Loss on repayment of debt
   
 
15.4
 
   
 
—  
 
Other changes, net
                  
Receivables
   
 
(1.8
)
   
 
(64.1
)
Inventories
   
 
37.8
 
   
 
(63.1
)
Accounts payable
   
 
2.1
 
   
 
57.8
 
Other, net
   
 
3.2
 
   
 
76.3
 
    
  
Net cash provided by operating activities
   
 
93.0
 
   
 
95.4
 
    
  
Cash flows from investing activities:
                  
Capital expenditures
   
 
(11.0
)
   
 
(24.4
)
Business acquisitions
   
 
(21.4
)
   
 
(1,326.7
)
    
  
Net cash used in investing activities
   
 
(32.4
)
   
 
(1,351.1
)
    
  
Cash flow from financing activities:
                  
Changes in intercompany activities
   
 
—  
 
   
 
(109.2
)
Proceeds from the issuance of long-term debt
   
 
256.3
 
   
 
998.5
 
Repayment of long-term debt (including current portion)
   
 
(313.6
)
   
 
—  
 
(Decrease) increase in short-term notes payable
   
 
(6.8
)
   
 
45.3
 
Payment of deferred financing fees
   
 
(8.3
)
   
 
—  
 
Proceeds from the issuance of stock
   
 
10.0
 
   
 
369.6
 
Cash overdrafts
   
 
—  
 
   
 
12.3
 
    
  
Net cash (used in) provided by financing activities
   
 
(62.4
)
   
 
1,316.5
 
    
  
Effect of translation adjustments on cash
   
 
(2.8
)
   
 
2.0
 
    
  
Net (decrease) increase in cash and equivalents
   
 
(4.6
)
   
 
62.8
 
Cash and equivalents, beginning of period
   
 
97.2
 
   
 
19.7
 
    
  
Cash and equivalents, end of period
   
$
92.6
 
   
$
82.5
 
    
  
Supplemental disclosure of cash flow information:
                  
Cash payments during the period for:
                  
Interest
   
$
43.3
 
   
$
14.5
 
Income taxes
   
 
16.0
 
   
 
17.7
 
 
See accompanying notes to condensed consolidated financial statements

5

Table of Contents
 
DRESSER, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
 
Note 1.    Organization and Basis of Presentation
 
Dresser, Inc. was originally incorporated in 1998, under the name of Dresser Equipment Group, Inc. under the laws of the state of Delaware. The certificate of incorporation was amended and restated on April 9, 2001 and again on July 3, 2002. As used in this report, the terms “Dresser,” “the Company,” “we” or “us” refer to Dresser,