1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (Date of earliest event reported): FEBRUARY 11, 2000
WEATHERFORD INTERNATIONAL, INC.
(Exact name of registrant as specified in charter)
DELAWARE 1-13086 04-2515019
(State of Incorporation) (Commission File No.) (I.R.S. Employer
Identification No.)
515 POST OAK BLVD., SUITE 600
HOUSTON, TEXAS 77027
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 693-4000
Page 1
2
ITEM 5. OTHER EVENTS
GRANT PRIDECO SEC FILING AND YEAR END RESULTS
On February 7, 2000, our Grant Prideco, Inc. subsidiary filed with the
Securities and Exchange Commission an amendment to its Registration Statement
on Form 10. That registration statement is a document that is filed to register
the Grant Prideco common stock to be issued to our stockholders in our proposed
spin-off of Grant Prideco. The registration statement is also necessary in
connection with the listing of Grant Prideco's stock on the New York Stock
Exchange.
In the registration statement filed by Grant Prideco, it has included
its standalone audited financial statements for the years ended December 31,
1999, 1998 and 1997, as well as its balance sheet as of December 31, 1999 and
1998. The registration statement contains substantial information with respect
to the proposed spin-off and the business and operations of Grant Prideco on
the standalone basis, including a detailed description of its prospects and
trends. Please refer to that filing for that information.
As previously announced in our year end earnings press release, Grant
Prideco reported a net loss for 1999 of $33.5 million on total revenues
of $286.4 million. In 1998, Grant Prideco reported net income of $65.7 million
on total revenues of $646.5 million. Excluded from the revenue and income of
Grant Prideco was approximately $28.6 million and $9.6 million in revenues for
1999 and 1998, respectively, relating to intercompany sales to us.
The decline in Grant Prideco's revenues and net income was primarily
attributable to the severe downturn in the businesses of Grant Prideco during
1999 due to the decline in drilling activity and low oil prices. Material items
affecting Grant Prideco's results for 1999 compared to 1998 included:
o Decreased revenues due to a more than 60% drop in drill stem sales.
o Lower premium tubular and connection sales due to reduced
offshore activity, lower distributor purchases and a decline
in tubular processing activity.
o A $9.5 million pretax writedown associated with the decision by Grant
Prideco to terminate a manufacturing arrangement with Oil Country
Tubular Limited ("OCTL") in India. The decision to terminate this
manufacturing arrangement was due to a combination of factors,
including the downturn in the market and political instability
in India. Grant Prideco continues to have approximately $17.3
million in outstanding receivables and advances owed to it by OCTL
that it is in the process of seeking to collect on those amounts in
cash, conversion into equity of OCTL and product deliveries. A
discussion of this writedown and Grant Prideco's continued exposure
in India is set forth below under "Risk Factors".
o Grant Prideco experienced high manufacturing and unabsorbed
costs due to the fixed costs associated with its
manufacturing operations and plant underutilization.
o Grant Prideco's gross profit, gross profit percentages and
operating income all declined in 1999 compared to 1998 due to
lower sales volume, pricing pressure and high fixed costs.
o Grant Prideco's 1998 results benefitted from $9 million in
income from the sale of its international rights to its Atlas
Bradford Connection Line.
Page 2
3
o Grant Prideco's corporate, general and administrative
expenses in 1999 increased approximately 5% compared to 1998
due to increased overhead charges from us and higher
corporate and overhead costs relating to the addition of
staff by it in anticipation of the spin-off.
As previously reported by us, the market for oilfield products and
services has begun to improve as increased prices of oil have begun to translate
into greater drilling and exploration activity. In this regard, Grant Prideco
has begun realizing increases in sales of casing and premium tubing as
distributors have begun restocking their inventories. Grant Prideco is also
beginning to see increased orders and inquiries with respect to its drill stem
products. Grant Prideco currently expects that the first quarter of 2000 will
improve over the third and fourth quarters of 1999 as demand for its products
increase, in particular the demand for its premium tubulars and connections.
Grant Prideco's drill stem sales are also expected to increase based on its
current order activity.
Looking forward to 2000, Grant Prideco currently expects that the
demand for its drill stem and premium and other tubular products should
increase as drilling and completion activity picks up. The improvement in the
market, however, is expected to be gradual over the year, with the largest
increases currently expected to occur in the second half of the year.
Accordingly, the results for Grant Prideco for 2000 are expected to be
dependent on the speed and strength of the recovery. Grant Prideco, however,
believes that the market for its products is improving and absent another
downturn in the industry, operating results should improve steadily during the
year.
STATUS OF SPIN-OFF
As noted above, Grant Prideco has recently filed an amendment to its
registration statement relating to our proposed spin-off of Grant Prideco. That
amendment is currently in the process of being reviewed at the Securities and
Exchange Commission. We are also continuing the process of seeking to obtain a
private letter ruling from the Internal Revenue Service relating to the
proposed spin-off. To date, we have made various filings with the Internal
Revenue Service and have responded to customary requests for information
relating to the spin-off. We have not been advised that there are any material
issues that would prevent the ruling from being issued nor do we anticipate or
believe there exists any reason why the private letter ruling would not be
issued. In this regard, based on our conversations with the Internal Revenue
Service, we currently expect that the ruling being requested by us should be
received sometime in the latter part of the first quarter of 2000. The timing
of the ruling, however, is dependent on various factors outside our control and
is subject to the normal administrative process. Once the ruling is received, a
record date for the spin-off would be announced and the spin-off would be
completed within three to four weeks following the record date.
FORWARD-LOOKING STATEMENTS
This report as well as other filings made by us with the Securities
and Exchange Commission and our releases issued to the public contain various
statements relating to future results, including certain projections and
business trends. We believe these statements constitute "Forward-Looking
Statements" as defined in the Private Securities Litigation Reform Act of 1995.
From time to time we update the various factors that are considered by
us in making our forward-looking statements and the assumptions used by us in
those statements. The following sets forth an update of the various assumptions
used by us in our forward-looking statements as well as risks and uncertainties
relating to those statements.
Page 3
4
Certain risks and uncertainties may cause actual results to be
materially different from projected results contained in forward-looking
statements in this report and in our other disclosures. These risks and
uncertainties include, but are not limited to, those described in "Risk
Factors" below and the following:
A Further Downturn in Market Conditions Could Affect Projected
Results. Any unexpected material changes in oil and gas prices or other market
trends would likely affect the forward-looking information provided by us. Any
unexpected material changes in oil and gas prices or other market trends that
would impact drilling activity would likely affect the forward-looking
information contained in this information statement. Our results for 1999 were
materially and adversely affected by the downtown in the industry that began in
1998. Although we currently expect that our results for 2000 will show a
material improvement over 1999 due to higher oil prices and drilling activity
and a general industry view that market conditions have bottomed our and are
beginning to recover, the oil and gas industry is extremely volatile and
subject to change based on political and economic factors outside our control.
Our estimates as to future results and industry trends are based on
assumptions regarding the future prices of oil and gas, the North American and
international rig counts and their effect on the demand and pricing of our
products and services. In analyzing the market and its impact on us for 2000,
we have made the following assumptions:
o The recent increase in the price of oil will result in
improvements to our businesses in 2000, with the strongest
improvements expected to incur in the second half of 2000.
o Oil prices will average over $20 per barrel for West Texas
Intermediate crude.
o Average natural gas prices for 2000 will remain at or near
their current levels.
o World demand for oil will be up only slightly.
o Drilling activity will increase slightly beyond normal demand
as oil companies seek to replace and produce reserves that
were not replaced or produced in 1999.
o North American and international rig counts will improve,
with increases in the international rig count following the
North American rig count increase by around six months. In
2000, we have made our internal budgets based upon an average
rig count for North America around 1,100 and the average
international rig count of around 630.
o Pricing for many of our products and services should increase
steadily during the year. Pricing will be subject to market
conditions and continued pricing pressures in selected
markets and product lines.
o Demand for compression services will remain relatively flat for
most of 2000.
o Future growth in the industry will be dependent on technological
advances that can reduce the costs of exploration and production,
and technological improvements in tools used for re-entry,
thru-tubing and extended reach drilling as well as artificial
lift technologies will be important to our future.
These assumptions are based on various macroeconomic factors, and
actual market conditions could vary materially from those assumed.
A Future Reduction in the Rig Count Could Adversely Affect the Demand
for Our Products and Services. Our operations were materially affected by the
decline in the rig count during 1998 and 1999. Although the North American rig
count has improved slightly from its historical low in 1999, a further decline
in the North American and international rig counts would adversely affect our
results. Our forward-looking statements regarding our drilling products assume
an improvement in the rig count in 2000 and that there will not be any material
declines in the worldwide rig count, in particular the domestic rig count. Our
statement also assumes an increase in the international markets to occur by mid
2000.
Page 4
5
Projected Cost Savings Could Be Insufficient. During 1998 and 1999, we
implemented a number of programs intended to reduce costs and align our cost
structure with the current market environment. Our forward-looking statements
regarding cost savings and their impact on our business assume these measures
will generate the savings expected. However, if the markets continue to
decline, additional actions may be necessary to achieve the desired savings.
Grant Spinoff. We are currently proposing a spinoff of our Grant
Prideco drilling products business. The spinoff of this business is subject to
the receipt of a favorable private letter ruling from the Internal Revenue
Service confirming that the spinoff will be generally tax free to us and our
shareholders. There can be no assurance that a spinoff of the business will
occur or the specific timing thereof.
Integration of Acquisitions. During 1999, we consummated various
acquisitions of product lines and businesses. The success of these acquisitions
will be dependent on our ability to integrate these product lines and
businesses with our existing businesses and eliminate duplicative costs. We
have incurred various duplicative costs with respect to the operations of
companies and businesses acquired by us during 1999 pending the integration of
the acquired businesses with our businesses. Our forward-looking statements
assume the successful integration of the acquired businesses and their
contribution to our income during 2000. Integration of acquisitions is
something that cannot occur overnight and is something that requires constant
effort at the local level to be successful. Accordingly, there can be no
assurance as to the ultimate success of our integration efforts.
Weatherford's Success is Dependent upon Technological Advances. Our
ability to succeed with our long-term growth strategy is dependent on the
technological competitiveness of our product and service offerings. A central
aspect of our growth strategy is to enhance the technology of our products and
services, to expand the markets for many of our products through the leverage
of our worldwide infrastructure and to enter new markets and expand in existing
markets with technologically advanced value-added products. Our forward-looking
statements have assumed gradual growth from these new products and services
during 2000.
Unexpected Year 2000 Problems Could Have an Adverse Financial Impact.
To date, we do not know of any failures of our software, hardware, equipment or
products or those of our suppliers, vendors or customers as a result of the
occurrence of the Year 2000 date change; however, any such failure could have a
material impact on us. We have assumed that no material Year 2000 failures will
occur. We do not believe, however, that the worst case scenario will be
material to us.
Economic Downturn Could Adversely Affect Demand for Products and
Services. The economic downturn that began in Asia in 1997 affected the
economies in other regions of the world, including South America and the former
Soviet Union, and contributed to the decline in the price of oil and the level
of drilling activity. Although the economy in the United States also has
experienced one of its longest periods of growth in recent history, the
continued strength of the United States economy cannot be assured. If the
United States or European economies were to begin to decline or if the
economies of South America or Asia were to experience further material
problems, the demand and price for oil and gas and our products and services
could again adversely affect our revenues and income. We have assumed that a
worldwide recession or a material downturn in the United States economy will
not occur.
Currency Fluctuations Could Have a Material Adverse Financial Impact.
A material decline in currency rates in our markets could affect our future
results as well as affect the carrying values of our assets. World currencies
have been subject to much volatility. Our forward-looking statements assume no
material impact from changes in currencies because our financial position is
generally dollar based or hedged. For those revenues denominated in local
currency the effect of foreign currency fluctuations is largely mitigated
because local expenses are denominated in the same currency.
Page 5
6
Changes in Global Trade Policies Could Adversely Impact Operations.
Changes in global trade policies in our markets could impact our operations in
these markets. We have assumed that there will be no material changes in global
trading policies.
Unexpected Litigation and Legal Disputes Could Have a Material Adverse
Financial Impact. If we experience unexpected litigation or unexpected results
in our existing litigation having a material effect on results, the accuracy of
the forward-looking statements would be affected. Our forward-looking
statements assume that there will be no such unexpected litigation or results.
Finally, our future results will depend upon various other risks and
uncertainties, including, but not limited to, those detailed in our other
filings with the Securities and Exchange Commission. For additional information
regarding risks and uncertainties, see our other current year filings with the
Commission under the Securities Exchange Act of 1934, as amended, and the
Securities Act of 1933, as amended. We will generally update our assumptions in
our filings as circumstances require.
RISK FACTORS
From time to time we update the risk factors relating to an investment
in our common stock. The following contains that update.
An investment in our common stock involves various risks. When
considering an investment in our company you should consider carefully the
following factors, together with the information described elsewhere in this
report.
Low Prices for Oil Adversely Affect the Demand for Our Products and
Services. Low oil prices adversely affect demand throughout the oil and natural
gas industry, including the demand for our products and services. As prices
decline, we are affected in two significant ways. First, the funds available to
our customers for the purchase of goods and services decline. Second,
exploration and drilling activity declines as marginally profitable projects
become uneconomic and either are delayed or eliminated. Accordingly, as long as
oil prices are low, our revenues and income will be adversely affected. Despite
the recent increases in the price of oil, the market conditions existing in
1998 and 1999 affected our business in various ways. Our completion and
oilfield services businesses experienced declines in line with the general
reduction in industry activity with the greatest declines occurring in the
United States markets. Our artificial lift business, which is heavily dependent
on North American production, experienced continuous declines in revenue
throughout 1998 and the first quarter of 1999. Our Grant Prideco drilling
products division, which is classified as a discounted operation, experienced a
significant decline in new orders of drill pipe and other drill stem products
and tubular sales fell as completion activity slowed, tubular distributors
reduced inventories and due to excess drill pipe from idle rigs. Our
compression services business was only been marginally affected by the declines
in market conditions because its business is based on levels of natural gas
development and production, which has been more stable than oil production. Our
compression business was subject to price competition in North America.
Our businesses will continue to be affected by industry conditions,
including those conditions and factors described under "Forward-Looking
Statements".
Customer Credit Risks. Substantially all of our customers are engaged
in the energy industry. This concentration of customers may impact our overall
exposure to credit risk, either positively or negatively, in that customers may
be similarly affected by changes in economic and industry conditions. Many of
our customers slowed the payment of their accounts in 1999 in light of current
industry
Page 6
7
conditions and others have experienced greater financial difficulties
in meeting their payment terms. We perform ongoing credit evaluations of our
customers and do not generally require collateral in support of our trade
receivables. We maintain reserves for potential credit losses, and actual
losses have historically been within our expectations.
Disruptions in Foreign Operations Could Adversely Affect Our Income.
Like most multinational oilfield service companies, we have operations in
certain international areas, including parts of the Middle East, North and West
Africa, Latin America, the Asia-Pacific region and the Commonwealth of
Independent States, that are inherently subject to risks of war, local economic
conditions, political disruption, civil disturbance and policies that may:
o disrupt our operations and oil and gas exploration and production
activities;
o restrict the movement of funds;
o lead to U.S. government or international sanctions; and
o limit access to markets for periods of time.
Historically, the economic impact of such disruptions has been
temporary, and oil and gas exploration and production activities have resumed
eventually in relation to market forces. Certain areas, including the CIS,
Algeria, Nigeria, parts of the Middle East, the Asia-Pacific region and Latin
America, have been subjected to political disruption which has negatively
impacted results of operations following such events. Disruptions may occur in
our foreign operations, and losses may occur that will not be covered by
insurance.
As noted in our discussion regarding Grant Prideco, Grant Prideco
recently decided to terminate an existing arrangement in India with OCTL, which
resulted in a one time charge of $6.1 million, net of tax, directly related to
the write off of certain assets in India. OCTL manufactured drill pipe and
other products for us under a long-term exclusive manufacturing arrangement.
Over the years, Grant Prideco provided OCTL with a substantial amount of raw
materials, inventory and working capital for the products it manufactures for
us. Grant Prideco's business in India through OCTL has been adversely affected
by the downturn of the economies in the eastern hemisphere and is subject to
various political and economic risks as well as financial and operational risks
with respect to OCTL.
As of December 31, 1999, OCTL owed Grant Prideco approximately $25.1
million for prior advances made by it to OCTL and Grant Prideco had assets in
India with a book value of approximately $1.7 million. In 1999, Grant Prideco
substantially curtailed its purchases from OCTL, and decided to terminate its
existing manufacturing relationship with OCTL and seek an alternative
arrangement for the recovery of its prior advances. After giving effect to the
$6.1 million after tax writeoff noted above, Grant Prideco's remaining exposure
in India is approximately $17.3 million and consist of unpaid receivable and
advances made to assist OCTL in its working capital needs as part of Grant
Prideco's manufacturing arrangement with it. Grant Prideco is currently
discussing with OCTL a restructuring of its relationship that would allow OCTL
to repay prior advances in cash, equity in OCTL or product. Based on financial
information of OCTL known to Grant Prideco and its general knowledge of the
business and assets of OCTL, OCTL would appear to have a sufficient asset and
equity value to allow for a restructuring of its debt to Grant Prideco on the
terms being discussed. There is, however, uncertainty as to how much, if any,
of the amounts owed to Grant Prideco by OCTL will ultimately be collected.
Accordingly, there can be no assurance that Grant Prideco will be able to fully
realize on the amounts owed to it by OCTL or that additional charges relating
to India will not be required in the near term as the negotiation and
collection process continues. Any additional charges prior to spin-off would
adversely
Page 7
8
affect Grant Prideco's results and reduce our net income.
Our Products and Services are Subject to Operational, Litigation and
Environmental Risks. Our products are used for the exploration and production
of oil and natural gas. These operations are subject to hazards inherent in the
oil and gas industry that can cause personal injury or loss of life, damage to
or destruction of property, equipment, the environment and marine life, and
suspension of operations. These hazards include fires, explosions, craterings,
blowouts and oil spills. Litigation arising from an accident at a location
where our products or services are used or provided may result in our being
named as a defendant in lawsuits asserting potentially large claims.
In the ordinary course of business, we become the subject of various
claims and litigation. We maintain insurance to cover many of our potential
losses and we are subject to various self-retentions and deductibles with
respect to our insurance. Although we are subject to various ongoing items of
litigation, we do not believe that any of the items of litigation that we are
currently subject to will result in any material uninsured losses to us. It is,
however, possible that an unexpected judgment could be rendered against us in
cases in which we could be uninsured and beyond the amounts that we currently
have reserved or anticipate incurring for that matter.
We are also subject to various federal, state and local laws and
regulations relating to the energy industry in general and the environment in
particular. Environmental laws have in recent years become more stringent and
have generally sought to impose greater liability on a larger number of
potentially responsible parties. While we are not currently aware of any
situation involving an environmental claim that would likely have a material
adverse effect on our business, it is always possible that an environmental
claim with respect to one or more of our current businesses or a business or
property that one of our predecessors owned or used could arise that could
involve the expenditure of a material amount of funds.
Currency Devaluation and Fluctuation Risks. A single European currency
("the Euro") was introduced on January 1, 1999, at which time the conversion
rates between legacy currencies and the Euro were set for 11 participating
member countries. However, the legacy currencies in those countries will
continue to be used as legal tender through January 1, 2002. Thereafter, the
legacy currencies will be canceled, and the Euro bills and coins will be used
in the 11 participating countries. We are currently evaluating the effect of
the Euro on our consolidated financial statements and our business operations;
however, we do not foresee that the transition to the Euro will have a
significant impact.
Approximately 45% to 50% of our net assets are located outside the
United States and are carried on our books in local currencies. Changes in those
currencies in relation to the U.S. dollar result in translation adjustments
which are reflected as accumulated other comprehensive loss in the stockholders'
equity on our balance sheet.
Our Common Stock has Fluctuated Historically. Historically, and in
recent months in particular, the market price of common stock of companies
engaged in the oil and gas industry has been highly volatile. Likewise, the
market price of our common stock has varied significantly in the past. News
announcements and changes in oil and natural gas prices, changes in the demand
for oil and natural gas exploration and changes in the supply and demand for
oil and natural gas have all been factors that have affected the price of our
common stock.
We are Subject to Risks Related to the Year 2000 that could Negatively
Impact Our Business. The Year 2000 issue is the risk that information systems,
computers, equipment and products using date-sensitive software or containing
computer chips with two-digit date fields will be unable to correctly process
the Year 2000 date change. If not identified and corrected, failures could
occur in our software,
Page 8
9
hardware, equipment and products and those of our suppliers, vendors and
customers that could result in interruptions in our business. All phases of our
Year 2000 plan have been completed. To date, we do not know of any failures of
our software, hardware, equipment or products or those of our suppliers,
vendors or customers as a result of the occurrence of the Year 2000 date
change; however, any such failure could have a material impact on us. Because
no material adverse effects from the Year 2000 have occurred, we are unable to
predict the most likely worst case Year 2000 scenario.
Page 9
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
WEATHERFORD INTERNATIONAL, INC.
Dated: February 11, 2000 /s/ CURTIS W. HUFF
----------------------------------
Curtis W. Huff
Executive Vice President and
Chief Financial Officer
Page 10