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FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED JUNE 30, 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
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(Address of principal executive offices)
(713) 346-7500
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(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 August 10, 2001, 80,888,505 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.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NATIONAL-OILWELL, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
June 30, December 31,
2001 2000
----------------- ------------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 39,696 $ 42,459
Receivables, less allowance of $7,109 and $5,885 405,492 295,163
Inventories 480,107 375,734
Deferred income taxes 16,495 17,105
Prepaids and other current assets 14,957 12,642
----------- -----------
956,747 743,103
Property, plant and equipment, net 176,650 173,646
Deferred income taxes 20,658 19,919
Goodwill 351,298 329,340
Property held for sale 8,271 8,271
Other assets 11,256 4,615
------------ ------------
$ 1,524,880 $ 1,278,894
============ ============
LIABILITIES AND OWNERS' EQUITY
Current liabilities:
Accounts payable 206,532 165,801
Customer prepayments 24,450 19,371
Accrued compensation 15,753 10,996
Other accrued liabilities 82,823 66,614
------------ ------------
329,558 262,782
Long-term debt 363,896 222,477
Deferred income taxes 15,271 16,030
Other liabilities 8,456 10,399
------------ ------------
717,181 511,688
Commitments and contingencies
Stockholders' equity:
Common stock - par value $.01; 80,873,219 shares
and 80,508,535 shares issued and outstanding
at June 30, 2001 and December 31, 2000 809 805
Additional paid-in capital 589,705 583,225
Accumulated other comprehensive income (34,626) (21,858)
Retained earnings 251,811 205,034
------------ ------------
807,699 767,206
------------ ------------
$ 1,524,880 $ 1,278,894
============ ============
The accompanying notes are an integral part of these statements.
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NATIONAL-OILWELL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------------- ------------------------------------
2001 2000 2001 2000
---------------- ---------------- ---------------- ---------------
Revenues $ 434,628 $ 270,305 $ 794,900 $ 534,196
Cost of revenues 331,134 212,121 600,233 418,298
--------- --------- --------- ---------
Gross profit 103,494 58,184 194,667 115,898
Selling, general and administrative 56,703 44,555 111,647 90,796
Special charges -- 13,000 - 13,000
--------- --------- --------- ---------
Operating income 46,791 629 83,020 12,102
Other income (expense):
Interest and financial costs (6,233) (4,788) (11,560) (9,470)
Interest income 719 790 1,246 1,421
Other (472) (8,276) 2,739 (8,469)
--------- --------- --------- ---------
Income/(loss) before income taxes 40,805 (11,645) 75,445 (4,416)
Provision/(benefit) for income taxes 15,506 (2,181) 28,668 564
---------- --------- --------- ---------
Net income/(loss) $ 25,299 $ (9,464) $ 46,777 $ (4,980)
========== ========= ========= =========
Net income/(loss) per share:
Basic $ 0.31 $ (0.12) $ 0.58 $ (0.06)
========== ========= ========= =========
Diluted $ 0.31 $ (0.12) $ 0.57 $ (0.06)
========== ========= ========= =========
Weighted average shares outstanding:
Basic 80,859 79,830 80,738 78,431
========== ========= ========= =========
Diluted 82,088 79,830 82,032 78,431
========== ========= ========= =========
The accompanying notes are an integral part of these statements.
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NATIONAL-OILWELL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
Six Months Ended June 30,
------------------------------------------
2001 2000
--------------- ---------------
Cash flow from operating activities:
Net income (loss) $ 46,777 $ (4,980)
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 19,072 17,501
Provision for losses on receivables 1,520 1,273
Provision for deferred income taxes (39) (4,328)
Gain on sale of assets (1,483) (1,880)
Foreign currency transaction (gain) (449) (11)
Changes in assets and liabilities, net of acquisitions and divestments:
Receivables (101,293) (18,389)
Net investment in marketable securities - 14,686
Inventories (98,636) (13,494)
Prepaid and other current assets (2,301) (937)
Accounts payable 41,800 21,675
Other assets/liabilities, net (9,755) (5,668)
--------- ---------
Net cash provided (used) by operating activities (104,787) 5,448
--------- ---------
Cash flow from investing activities:
Purchases of property, plant and equipment (14,558) (10,793)
Proceeds from sale of assets 4,158 4,853
Businesses acquired, net of cash (35,249) (6,431)
--------- ---------
Net cash used by investing activities (45,649) (12,371)
--------- ---------
Cash flow from financing activities:
Payments on line of credit (5,381) (20,023)
Proceeds from stock options exercised 6,486 3,144
Net proceeds from issuance of long-term debt 146,631 -
Other - 37
--------- ---------
Net cash provided (used) by financing activities 147,736 (16,842)
--------- ---------
Effect of exchange rate loss on cash (63) (234)
--------- ---------
Decrease in cash and equivalents (2,763) (23,999)
Cash and cash equivalents, beginning of period 42,459 48,091
--------- ---------
Cash and cash equivalents, end of period $ 39,696 $ 24,092
========= =========
Supplemental disclosures of cash flow information:
Cash payments during the period for:
Interest $ 7,606 $ 8,737
Income taxes 12,233 3,463
The accompanying notes are an integral part of these statements.
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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 accounting principles
generally accepted in the United States 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 accounting principles generally accepted in the United States
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 accounting principles generally accepted in the United
States 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 and six months ended June 30, 2001 and 2000 may not be
indicative of results for the full year. No significant accounting changes have
occurred during the six months ended June 30, 2001.
2. ACQUISITIONS
Effective June 1, 2001, we acquired Rye Supply Company, Inc., an oilfield
distribution company with U.S. operations in West Texas and New Mexico, for
approximately $9.5 million generating approximately $5 million in goodwill.
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. Goodwill associated with this purchase is approximately $7 million.
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.
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.
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3. INVENTORIES
Inventories consist of (in thousands):
June 30, December 31,
2001 2000
------------------ ------------------
Raw materials and supplies $ 40,353 $ 32,306
Work in process 119,009 63,758
Finished goods and purchased products 320,745 279,670
------------ -----------
Total $ 480,107 $ 375,734
============ ===========
4. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets, effective for fiscal years beginning
after December 15, 2001. Under the new rules, goodwill and intangible
assets deemed to have indefinite lives will no longer be amortized but will
be subject to annual impairment tests in accordance with the Statements.
Other intangible assets will continue to be amortized over their useful
lives. In addition, accounting for acquisitions under the
pooling-of-interests method is no longer permitted.
The Company will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. Application of
the nonamortization provisions of the Statement is expected to result in an
increase in net income of $10 million ($0.12 per share) per year. During
2002, the Company will perform the first of the required impairment tests
of goodwill and indefinite lived intangible assets as of January 1, 2002
and has not yet determined what the effect of these tests will be on the
earnings and financial position of the Company.
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.
5. COMPREHENSIVE INCOME
The components of comprehensive income are as follows (in thousands):
Quarter Ended June 30, Six Months Ended June 30,
------------------------------------ -------------------------------------
2001 2000 2001 2000
--------------- --------------- ---------------- ----------------
Net income/(loss) $ 25,299 $ (9,464) $ 46,777 $ (4,980)
Currency translation adjustments (1,130) (7,087) (11,322) (10,720)
Unrealized gains (losses) on securities 2 251 (1,446) 570
-------- --------- -------- ---------
Comprehensive income $ 24,171 $ (16,300) $ 34,009 $ (15,130)
======== ========= ======== =========
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6. BUSINESS SEGMENTS
Segment information (unaudited) follows (in thousands):
Quarter Ended June 30, Six Months Ended June 30,
------------------------------------------- ----------------------------------------
2001 2000 2001 2000
-------------------- -------------------- ------------------- ------------------
Revenues from unaffiliated customers
Products and Technology $ 260,426 $ 147,861 $ 456,984 $ 288,885
Distribution Services 174,202 122,444 337,916 245,311
-------------------- -------------------- ------------------- ------------------
434,628 270,305 794,900 534,196
Intersegment revenues
Products and Technology 15,388 11,906 40,072 21,310
Distribution Services 400 85 795 195
-------------------- -------------------- ------------------- ------------------
15,788 11,991 40,867 21,505
Operating income
Products and Technology 42,020 15,087 74,129 29,107
Distribution Services 7,409 2,546 13,808 3,496
-------------------- -------------------- ------------------- ------------------
Total profit for reportable segments 49,429 17,633 87,937 32,603
Special charges - 13,000 - 13,000
Unallocated corporate costs (2,638) (4,004) (4,917) (7,501)
Operating income 46,791 629 83,020 12,102
Net interest expense (5,514) (3,998) (10,314) (8,049)
Other income (expense) (472) (8,276) 2,739 (8,469)
-------------------- -------------------- ------------------- -------------------
Income before income taxes $ 40,805 $ (11,645) $ 75,445 $ (4,416)
==================== ==================== =================== ===================
Total assets
Products and Technology $ 1,275,695 $ 952,974
Distribution Services 266,868 222,071
7. LONG-TERM DEBT
Long-term debt consists of (in thousands):
June 30, December 31,
2001 2000
---------------------- ----------------------
Revolving credit facilities $ 63,896 $ 72,477
6-7/8% senior notes 150,000 150,000
6-1/2% senior notes 150,000 --
---------------------- ----------------------
363,896 222,477
Less current portion -- --
---------------------- ----------------------
$ 363,896 $ 222,477
====================== ======================
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.
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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 $19.6 million and $19.4 million were outstanding at June 30, 2001 and
December 31, 2000, respectively. The credit facility provides for interest at
prime or LIBOR plus 0.5% (6.75% and 4.50% at June 30, 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
June 30, 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 $4.2 million were outstanding at
June 30, 2001.
8. SPECIAL CHARGES
In conjunction with the merger with IRI International Corporation in June 2000,
the Company recorded a special charge of $13.0 million, approximately half of
which was direct transaction costs. The remaining amount pertains to severance
payments related to the integration of executive and administrative functions.
9. OTHER INCOME/(EXPENSE)
During June 2000, the Company liquidated a marketable securities portfolio
maintained by IRI International Corporation prior to the merger for $11.2
million, generating a pre-tax loss on the sale of $8.5 million ($5.2 million
after-tax). Proceeds were used to pay down debt.
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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. As a result, general
market activity remained strong during the first half of 2001.
RESULTS OF OPERATIONS
Operating results excluding special charges by segment are as follows
(in thousands):
Quarter Ended June 30, Six Months Ended June 30,
-----------------------------------------------------------------------
Revenues 2001 2000 2001 2000
------------- ------------- ------------- -------------
Products and Technology $ 275,814 $ 159,767 $ 497,056 $ 310,195
Distribution Services 174,602 122,529 338,711 245,506
Eliminations (15,788) (11,991) (40,867) (21,505)
-------------- -------------- -------------- --------------
Total $ 434,628 $ 270,305 $ 794,900 $ 534,196
============== ============== ============== ==============
Operating Income excluding special charges
Products and Technology $ 42,020 $ 15,087 $ 74,129 $ 29,107
Distribution Services 7,409 2,546 13,808 3,496
Corporate (2,638) (4,004) (4,917) (7,501)
-------------- -------------- -------------- --------------
Total $ 46,791 $ 13,629 $ 83,020 $ 25,102
============== ============== ============== ==============
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.
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In addition, the segment provides pump expendable products for maintenance of
National-Oilwell's and other manufacturers' equipment.
During the first six months of 2001, we acquired the assets and business of
Integrated Power Systems and Tech Power Controls Co. and certain affiliated
companies for approximately $19.5 million. Both companies manufacture, sell and
service SCR units and are a complementary fit to our existing SCR product line.
In January 2001, we also acquired the stock of Maritime Hydraulics (Canada) Ltd
for Canadian $25 million (US$ 16.5 million). Maritime Hydraulics designs,
manufactures and sells coiled tubing units and truck mounted wireline and
nitrogen pumping units. Goodwill of approximately $22 million was recorded in
conjunction with these purchases.
Revenues for the Products and Technology segment increased by $116 million (73%)
in the second quarter of 2001 as compared to the same quarter in 2000 due
primarily to increased sales of capital equipment, drilling spare parts,
expendable pumps and related parts, and downhole motors and tools. Operating
income increased by $27 million in the second quarter of 2001 compared to the
same quarter in 2000 due principally to the higher revenue volume.
Products and Technology revenues in the first half of 2001 increased $187
million (60%) as compared to 2000 due to recent acquisitions and generally
improved market opportunities in all product lines. Capital equipment sales from
backlog increased $58 million and drilling spares sales increased $19 million
during the first six months when compared to the same period of the prior year
while Mission pumps and expendable parts increased $35 million and downhole
motors and tools were higher by $40 million. Operating income increased by $45
million in the first half of 2001 as a result of the higher volume.
Revenues from Products and Technology segment acquisitions completed subsequent
to June 30, 2000 under the purchase method of accounting generated $22 million
and $33 million in incremental revenues in the second quarter and first six
months of 2001, respectively. These acquisitions accounted for operating income
of $3 million and $4 million during the second quarter and the first six months
of 2001 over the same period of the prior year.
Backlog of the Products and Technology capital products was $441 million at June
30, 2001 compared to $282 million at December 31, 2000 and $142 million at June
30, 2000. A majority of the products in the 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 second quarter of 2001 over
the comparable 2000 period by $52 million. This 42% increase is driven primarily
by higher, more stable oil and gas prices with our U.S. operations up 55% and
Canada 15%. Revenues from the sale of parts manufactured by the Products &
Technology segment were up 55% while the maintenance, repair and operating
supplies revenues increased 39% over the second quarter of 2000. Operating
income in the second quarter of 2001 of $7 million was a $5 million improvement
over the second quarter of 2000, principally due to the higher revenue volume
and a slight improvement in margins.
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Revenues for the Distribution Services segment increased $93 million in the
first half of 2001 when compared to the prior year. Canadian revenues were up 8%
and the U.S. operations 54% for this same period as a result of sustained North
American drilling and production activity during 2001. Virtually all product
offerings are reflecting significant growth during the first half of 2001. This
volume increase generated an operating income increase of $10 million during the
first half of 2001 when compared to the similar 2000 period.
Revenues from acquisitions completed during the first half of 2001 attributable
to this segment accounted for $4 million in incremental revenues and $0.4
million of operating income in the second quarter and first six months of 2001.
Corporate
Corporate charges represent the unallocated portion of centralized and executive
management costs. A reduction of $2.6 million in the first six months of 2001 as
compared to 2000 reflects the elimination of the IRI International Inc.
corporate operations as a result of the June 2000 merger, offset partially by an
increase in spending on various e-strategy and other corporate initiatives.
Interest Expense
Interest expense increased during the three months and six months ended June 30,
2001 as compared to the prior year due to higher levels of debt, including the
March 2001 $150 million issuance of senior notes. Funding for acquisitions and
working capital requirements resulting from the general increase in activity are
the primary drivers of this rise in debt.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2001 we had working capital of $627 million, an increase of $147
million from December 31, 2000. Acquisitions completed during the first six
months of 2001 were accountable for $44 million of this increase. Significant
increases in accounts receivable of $110 million and inventory of $104 million
were partially offset by an increase in accounts payable and customer
prepayments of $46 million and income tax, interest and compensation accruals of
$14 million. Cash and equivalents remained virtually unchanged during the first
half of 2001.
Total capital expenditures were $15 million during the first half of 2001
compared to $11 million in the first six months of the prior year. Additions to
the downhole rental tool fleet and our 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 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 $19.6 million and $19.4 million were outstanding at June 30, 2001 and
December 31, 2000, respectively. The credit facility provides for interest at
prime or LIBOR plus 0.5% (6.75% and 4.50% at June 30, 2001) subject to downward
adjustment based on National Oilwell's Capitalization Ratio, as defined. The
credit facility contains financial covenants and ratios regarding
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minimum tangible net worth, maximum debt to capital and minimum interest
coverage. At June 30, 2001 and December 31, 2000, we were in compliance with all
the covenants governing this credit facility.
During June 2000, the Company liquidated a marketable securities portfolio
maintained by IRI International Corporation prior to the merger for $11.2
million, generating a pre-tax loss on the sale of $8.5 million ($5.2 million
after-tax). Proceeds were used to pay down debt.
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.
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.
SPECIAL CHARGES
In conjunction with the merger with IRI International Corporation in June 2000,
the Company recorded a special charge of $13.0 million, approximately half of
which was direct transaction costs. The remaining amount pertains to severance
payments related to the integration of executive and administrative functions.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets, effective for fiscal years beginning after
December 15, 2001. Under the new rules, goodwill and intangible assets deemed to
have indefinite lives will no longer be amortized but will be subject to annual
impairment tests in accordance with the Statements. Other intangible assets will
continue to be amortized over their useful lives. In addition, accounting for
acquisitions under the pooling-of-interests method is no longer permitted.
The Company will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. Application of the
nonamortization provisions of the Statement is expected to result in an increase
in net income of $10 million ($0.12 per share) per year. During 2002, the
Company will perform the first of the required impairment tests of goodwill and
indefinite lived intangible assets as of January 1, 2002 and has not yet
determined what the effect of these tests will be on the earnings and financial
position of the Company.
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.
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.
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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.
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PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of stockholders was held on May 15, 2001. Stockholders
elected two directors nominated by the board of directors for terms expiring in
2004 by the following votes: Frederick W. Pheasey - 51,766,031 votes for and
13,755,511 votes withheld, and Merrill A. Miller - 51,820,803 votes for and
13,700,739 votes withheld. There were no nominees to office other than the
directors elected.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
The Company has not filed any report on Form 8-K during the quarter for
which this report is filed.
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: August 14, 2001 /s/ Steven W. Krablin
-------------------- ------------------------
Steven W. Krablin
Principal Financial and Accounting Officer
and Duly Authorized Signatory
13