1
================================================================================
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED MARCH 31, 2001 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-12317
NATIONAL-OILWELL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 76-0475875
- --------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
10000 RICHMOND AVENUE
4TH FLOOR
HOUSTON, TEXAS
77042-4200
----------------------------------------
(Address of principal executive offices)
(713) 346-7500
----------------------------------------------------
(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
--- ---
As of May 9, 2001, 80,865,799 common shares were outstanding, assuming the
exchange on a one-for-one basis of all Exchangeable Shares of Dreco Energy
Services Ltd. into shares of National-Oilwell, Inc. common stock.
================================================================================
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NATIONAL-OILWELL, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
March 31, December 31,
2001 2000
----------- -----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 64,168 $ 42,459
Receivables, less allowance of $6,447 and $5,885 328,502 295,163
Inventories 417,567 375,734
Deferred income taxes 16,491 17,105
Prepaids and other current assets 14,377 12,642
----------- -----------
841,105 743,103
Property, plant and equipment, net 176,985 173,646
Deferred income taxes 20,637 19,919
Goodwill 341,149 329,340
Property held for sale 8,271 8,271
Other assets 6,147 4,615
----------- -----------
$ 1,394,294 $ 1,278,894
=========== ===========
LIABILITIES AND OWNERS' EQUITY
Current liabilities:
Accounts payable 190,349 165,801
Customer prepayments 29,515 19,371
Accrued compensation 8,196 10,996
Other accrued liabilities 59,967 66,614
----------- -----------
288,027 262,782
Long-term debt 301,048 222,477
Deferred income taxes 15,294 16,030
Other liabilities 7,155 10,399
----------- -----------
611,524 511,688
Commitments and contingencies
Stockholders' equity:
Common stock - par value $.01; 80,832,926 shares
and 80,508,535 shares issued and outstanding
at March 31, 2001 and December 31, 2000 808 805
Additional paid-in capital 588,948 583,225
Accumulated other comprehensive income (33,498) (21,858)
Retained earnings 226,512 205,034
----------- -----------
782,770 767,206
----------- -----------
$ 1,394,294 $ 1,278,894
=========== ===========
The accompanying notes are an integral part of these statements.
1
3
NATIONAL-OILWELL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
Three Months Ended March 31,
----------------------------
2001 2000
--------- ---------
Revenues $ 360,272 $ 263,891
Cost of revenues 269,099 211,530
--------- ---------
Gross profit 91,173 52,361
Selling, general and administrative 54,944 40,888
Operating income 36,229 11,473
--------- ---------
Other income (expense):
Interest and financial costs (5,327) (4,682)
Interest income 527 631
Other 3,211 (193)
--------- ---------
Income before income taxes 34,640 7,229
Provision for income taxes 13,162 2,745
--------- ---------
Net income $ 21,478 $ 4,484
========= =========
Net income per share:
Basic $ 0.27 $ 0.06
========= =========
Diluted $ 0.26 $ 0.06
========= =========
Weighted average shares outstanding:
Basic 80,616 77,033
========= =========
Diluted 81,977 78,213
========= =========
The accompanying notes are an integral part of these statements.
2
4
NATIONAL-OILWELL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
Three Months Ended March 31,
----------------------------
2001 2000
--------- ---------
Cash flow from operating activities:
Net income $ 21,478 $ 4,484
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 9,469 8,624
Provision for losses on receivables 635 853
Provision for deferred income taxes 55 (2,031)
Gain on sale of assets (805) (823)
Foreign currency transaction (gain) loss (826) 163
Changes in assets and liabilities, net of acquisitions and divestments:
Receivables (25,049) (31,822)
Net investment in marketable securities -- (5,095)
Inventories (40,869) 1,543
Prepaid and other current assets (2,784) 1,025
Accounts payable 29,631 11,185
Other assets/liabilities, net (20,796) (15,083)
--------- ---------
Net cash used by operating activities (29,861) (26,977)
--------- ---------
Cash flow from investing activities:
Purchases of property, plant and equipment (6,881) (5,998)
Proceeds from sale of assets 2,021 2,228
Businesses acquired, net of cash (26,701) (4,526)
--------- ---------
Net cash used by investing activities (31,561) (8,296)
--------- ---------
Cash flow from financing activities:
Payments on line of credit (68,217) 24,418
Proceeds from stock options exercised 5,726 2,224
Net proceeds from issuance of long-term debt 146,631 --
Other -- (74)
--------- ---------
Net cash provided by financing activities 84,140 26,568
--------- ---------
Effect of exchange rate gain on cash (1,009) (1)
--------- ---------
Increase/(decrease) in cash and equivalents 21,709 (8,706)
Cash and cash equivalents, beginning of period 42,459 48,091
--------- ---------
Cash and cash equivalents, end of period $ 64,168 $ 39,385
========= =========
Supplemental disclosures of cash flow information:
Cash payments during the period for:
Interest $ 6,726 $ 6,560
Income taxes $ 2,387 $ 882
The accompanying notes are an integral part of these statements.
3
5
NATIONAL-OILWELL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
Information concerning our common stock and per share data has been restated on
an equivalent share basis and assumes the exchange of all Exchangeable Shares
issued in connection with the combination with Dreco Energy Services Ltd. The
preparation of financial statements in conformity with generally accepted
accounting principles requires us to make estimates and assumptions that affect
reported and contingent amounts of assets and liabilities as of the date of the
financial statements and reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The accompanying unaudited consolidated financial statements present information
in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and applicable rules of
Regulation S-X. They do not include all information or footnotes required by
generally accepted accounting principles for complete financial statements and
should be read in conjunction with our 2000 Annual Report on Form 10-K.
In our opinion, the consolidated financial statements include all adjustments,
all of which are of a normal, recurring nature, necessary for a fair
presentation of the results for the interim periods. The results of operations
for the three months ended March 31, 2001 and 2000 may not be indicative of
results for the full year. No significant accounting changes have occurred
during the three months ended March 31, 2001. As a result of the June, 2000
merger with IRI International Corporation which was accounted for as a
pooling-of-interests, the March 31, 2000 financial statements have been
restated.
2. ACQUISITIONS
On January 3, 2001, the assets and business of Integrated Power Systems (IPS)
were acquired for approximately $9 million. IPS manufactures, sells and services
SCR units primarily used on land-based drilling rigs and is a complementary fit
to our existing SCR product line. Goodwill of approximately $4 million was
recorded in conjunction with this purchase.
On January 5, 2001, we completed the acquisition of the stock of Maritime
Hydraulics (Canada) Ltd. for Canadian $25 million (US$ 16.5 million). This
business, which designs, manufactures and sells coiled tubing units and truck
mounted wireline and nitrogen pumping units, was accounted for as a purchase.
Goodwill associated with this transaction was approximately $11 million.
4
6
3. INVENTORIES
Inventories consist of (in thousands):
March 31, December 31,
2001 2000
-------- ------------
Raw materials and supplies $ 34,715 $ 32,306
Work in process 90,081 63,758
Finished goods and purchased products 292,771 279,670
-------- --------
Total $417,567 $375,734
======== ========
4. COMPREHENSIVE INCOME
The components of comprehensive income are as follows (in thousands):
Quarter Ended March 31,
-----------------------
2001 2000
-------- --------
Net income $ 21,478 $ 4,484
Currency translation adjustments (10,192) (2,309)
Unrealized gains (losses) on securities (1,448) 189
-------- --------
Comprehensive income $ 9,838 $ 2,364
======== ========
5
7
5. BUSINESS SEGMENTS
Segment information (unaudited) follows (in thousands):
Quarter Ended March 31,
----------------------------
2001 2000
----------- -----------
Revenues from unaffiliated customers
Products and Technology $ 196,558 $ 141,024
Distribution Services 163,714 122,867
----------- -----------
360,272 263,891
Intersegment revenues
Products and Technology 24,684 9,404
Distribution Services 395 110
----------- -----------
25,079 9,514
Operating income (loss)
Products and Technology 32,109 14,020
Distribution Services 6,399 950
----------- -----------
Total profit for reportable segments 38,508 14,970
Unallocated corporate costs (2,279) (3,497)
Operating income 36,229 11,473
Net interest expense (4,800) (4,051)
Other income (expense) 3,211 (193)
----------- -----------
Income before income taxes $ 34,640 $ 7,229
=========== ===========
Total assets
Products and Technology $ 1,142,388 $ 986,122
Distribution Services 241,903 218,202
6. LONG-TERM DEBT
Long-term debt consists of (in thousands):
March 31, December 31,
2001 2000
-------- ------------
Revolving credit facilities $ 1,048 $ 72,477
6-7/8% senior notes 150,000 150,000
6-1/2% senior notes 150,000 --
-------- --------
301,048 222,477
Less current portion -- --
-------- --------
$301,048 $222,477
======== ========
6
8
In March 2001, we sold $150 million of 6.50% unsecured senior notes due March
15, 2011. Proceeds were used to repay indebtedness under our existing revolving
credit facility. Interest is payable on March 15 and September 15 of each year.
In June 1998, we sold $150 million of 6.875% unsecured senior notes due July 1,
2005. Interest is payable on January 1 and July 1 of each year.
In 1997, National Oilwell entered into a five-year unsecured $125 million
revolving credit facility. The credit facility is available for acquisitions and
general corporate purposes and provides up to $50 million for letters of credit,
of which $25.0 million and $19.4 million were outstanding at March 31, 2001 and
December 31, 2000, respectively. The credit facility provides for interest at
prime or LIBOR plus 0.5% (8.0% and 5.6% at March 31, 2001) subject to downward
adjustment based on National Oilwell's Capitalization Ratio, as defined. The
credit facility contains financial covenants and ratios regarding minimum
tangible net worth, maximum debt to capital and minimum interest coverage. At
March 31, 2001 and December 31, 2000, we were in compliance with all the
covenants governing this credit facility.
National Oilwell also has additional credit facilities totaling $50.0 million
used primarily for letters of credit, of which $6.1 million were outstanding at
March 31, 2001.
7. SUBSEQUENT EVENT
On April 30, 2001, we acquired the assets and business of Tech Power Controls
Co. and certain affiliated companies for approximately $11 million. This
business designs, manufactures and services SCR systems for both land and
offshore applications and is a complementary fit to our existing SCR product
line. Preliminary estimate of goodwill associated with this purchase is $7
million.
7
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
National Oilwell is a worldwide leader in the design, manufacture and sale of
comprehensive systems and components used in oil and gas drilling and
production, as well as in providing supply chain integration services to the
upstream oil and gas industry. We manufacture and assemble drilling machinery,
including drawworks, mud pumps and top drives, which are the major mechanical
components of drilling rigs, as well as masts, derricks and substructures. We
also provide coiled tubing units, electrical power systems, computer control
systems and automation systems for drilling rigs. In addition, we provide
engineering and fabrication services to integrate our drilling products and
deliver complete land drilling and workover rigs as well as drilling modules for
mobile offshore drilling rigs or offshore drilling platforms. Our Products and
Technology segment also designs and manufactures drilling motors and specialized
downhole tools for rent and sale. Drilling motors are essential components of
systems for horizontal, directional, extended reach and performance drilling.
Downhole tools include fishing tools, drilling jars, shock tools and other
specialized products. Our Distribution Services segment offers comprehensive
supply chain integration services to the drilling and production segments,
utilizing state of the art information technology platforms to provide
procurement, inventory management and logistics services.
National Oilwell's revenues are directly related to the level of worldwide oil
and gas drilling and production activities and the profitability and cash flow
of oil and gas companies and drilling contractors, which in turn are affected
by current and anticipated prices of oil and gas. Beginning in late 1997, oil
prices declined to less than $15 per barrel due to concerns about excess
production, less demand from Asia due to an economic slowdown and warmer than
average weather in many parts of the United States. Oil prices have recovered
since late July 1999 to a range of $25-$35 per barrel. The higher prices have
resulted in higher revenues for National Oilwell and we expect our revenues to
increase further if our customers gain confidence in sustained commodity prices
at this level and as their cash flows from operations improve.
RESULTS OF OPERATIONS
Operating results by segment are as follows (in thousands):
Quarter Ended March 31,
------------------------
Revenues 2001 2000
--------- ---------
Products and Technology $ 221,242 $ 150,428
Distribution Services 164,109 122,977
Eliminations (25,079) (9,514)
--------- ---------
Total $ 360,272 $ 263,891
========= =========
Operating Income
Products and Technology $ 32,109 $ 14,020
Distribution Services 6,399 950
Corporate (2,279) (3,497)
--------- ---------
Total $ 36,229 $ 11,473
========= =========
Products and Technology
Our Products and Technology segment designs and manufactures a wide range of
proprietary products, including drawworks, mud pumps, top drives, coiled tubing
units, electrical control systems and downhole motors and tools, as well as
complete land drilling and well servicing rigs and structural components such as
cranes, masts, derricks and substructures for offshore rigs. A substantial
installed base of these products results in a recurring replacement parts and
maintenance business. Sales of new capital equipment fluctuate between periods
depending on the size and timing of order shipments.
8
10
In addition, the segment provides pump expendable products for maintenance of
National-Oilwell's and other manufacturers' equipment.
In early January 2001, the assets and business of Integrated Power Systems (IPS)
and the stock of Maritime Hydraulics (Canada) Ltd were acquired for
approximately $9 million and Canadian $25 million (US$ 16.5 million),
respectively. IPS manufactures, sells and services SCR units primarily used on
land-based drilling rigs and is a complementary fit to our existing SCR product
line. Maritime Hydraulics designs, manufactures and sells coiled tubing units
and truck mounted wireline and nitrogen pumping units. Goodwill of approximately
$15 million was recorded in conjunction with these purchases.
Revenues for the Products and Technology segment increased by $71 million (47%)
in the first quarter of 2001 as compared to the same quarter in 2000 due
primarily to increased sales of capital equipment, expendable pumps and related
parts, and downhole motors and tools. Operating income increased by $18 million
in the first quarter of 2001 compared to the same quarter in 2000 due
principally to the higher revenue volume and improved margins on major projects,
offset in part by higher commission expense, depreciation and goodwill
amortization. Revenues from acquisitions completed subsequent to March 31, 2000
under the purchase method of accounting accounted for $17 million in incremental
revenues in the first quarter of 2001 and $2 million in operating income over
the same quarter of the prior year.
Backlog of the Products and Technology capital products was $382 million at
March 31, 2001 compared to $282 million at December 31, 2000 and $115 million at
March 31, 2000. Most of the product in current backlog will be delivered during
2001.
Distribution Services
Our Distribution Services segment offers comprehensive supply chain integration
services to the drilling and production segments. Our network of approximately
130 service centers located in the United States and Canada and near other major
drilling and production activity worldwide use state of the art information
technology platforms to provide procurement, inventory management and logistics
services. These service centers stock and sell a variety of expendable items for
oilfield applications purchased from numerous manufacturers and vendors,
including our Products and Technology segment.
Distribution Services revenues increased during the first quarter of 2001 over
the comparable 2000 period by $41 million. This 33% increase, virtually all in
the United States, reflects the enhanced drilling activity driven primarily by
higher, more stable oil and gas prices. Revenues from the sale of parts
manufactured by the Products & Technology segment were up 59% while the
maintenance, repair and operating supplies revenues increased 34% over the first
quarter of 2000. Operating income in the first quarter of 2001 of $6.4 million
was a $5.4 million improvement over the first quarter of 2000, principally due
to the higher revenue volume and improved margins.
Corporate
Corporate charges represent the unallocated portion of centralized and executive
management costs. A reduction of $1.2 million in the first quarter of 2001 as
compared to 2000 reflects the elimination of the IRI corporate operations as a
result of the June 2000 merger, offset partially by an increase in spending on
various e-strategy and e-commerce initiatives.
9
11
Interest Expense
Interest expense increased during the three months ended March 31, 2001 as
compared to the prior year due to higher levels of debt incurred in connection
with completed acquisitions and working capital requirements resulting from the
general increase in activity.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2001 we had working capital of $553 million, an increase of $73
million from December 31, 2000. The Integrated Power Systems and Maritime
Hydraulics (Canada) Ltd. acquisitions completed in early January 2001 were
accountable for $9 million of this increase. Significant increases in accounts
receivable and inventory of $33 million and $42 million were partially offset by
an increase in accounts payable of $25 million. Cash and equivalents increased
$22 million primarily due to the March 2001 senior debt offering.
Total capital expenditures were $7 million during the first three months of 2001
compared to $6 million in the first three months of the prior year. Additions to
the downhole rental tool fleet and enhancements to information management
systems, including e-strategy initiatives, represent the majority of these
capital expenditures. We believe we have sufficient existing manufacturing
capacity to meet currently anticipated demand through 2001 for our products and
services.
In March 2001, we sold $150 million of 6.50% unsecured senior notes due March
15, 2011. Proceeds were used to repay indebtedness under our existing revolving
credit facility. Interest is payable on March 15 and September 15 of each year.
In June 1998, we sold $150 million of 6.875% unsecured senior notes due July 1,
2005. Interest is payable on January 1 and July 1 of each year.
In September 1997, we entered into a five-year unsecured $125 million revolving
credit facility. The credit facility is available for acquisitions and general
corporate purposes. The credit facility provides for interest at prime or LIBOR
plus 0.5%, subject to downward adjustment based on our Capitalization Ratio, as
defined. The credit facility contains financial covenants and ratios regarding
minimum tangible net worth, maximum debt to capital and minimum interest
coverage.
We believe cash generated from operations and amounts available under the credit
facility and from other sources of debt will be sufficient to fund operations,
working capital needs, capital expenditure requirements and financing
obligations. We also believe any significant increase in capital expenditures
caused by any need to increase manufacturing capacity can be funded from
operations or through debt financing.
On January 1, 2001 we adopted Financial Accounting Standard Board Statement No.
133, Accounting for Derivative Instruments and Hedging Activities. The adoption
of this accounting standard did not have a significant effect on our results of
operations or financial position.
We intend to pursue additional acquisition candidates, but the timing, size or
success of any acquisition effort and the related potential capital commitments
cannot be predicted. We expect to fund future cash acquisitions primarily with
cash flow from operations and borrowings, including the unborrowed portion of
the credit facility or new debt issuances, but may also issue additional equity
either directly or in connection with acquisitions. There can be no assurance
that additional financing for acquisitions will be available at terms acceptable
to us.
10
12
FORWARD-LOOKING STATEMENTS
This document, other than historical financial information, contains
forward-looking statements that involve risks and uncertainties. Such statements
relate to our revenues, sales of capital equipment, backlog, capacity, liquidity
and capital resources and plans for acquisitions and any related financings.
Readers are referred to documents filed by us with the Securities and Exchange
Commission which identify significant risk factors which could cause actual
results to differ from those contained in the forward-looking statements,
including "Risk Factors" at Item 1 of the Annual Report on Form 10-K. Given
these uncertainties, current or prospective investors are cautioned not to place
undue reliance on any such forward-looking statements. We disclaim any
obligation or intent to update any such factors or forward-looking statements to
reflect future events or developments.
11
13
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
We filed a report on Form 8-K on March 19, 2001 regarding the sale of $150
million of unsecured senior notes due in March 2011.
SIGNATURE
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 thereunto duly authorized.
Date: May 14, 2001 /s/ Steven W. Krablin
------------- ------------------------------------------
Steven W. Krablin
Principal Financial and Accounting Officer
and Duly Authorized Signatory
12