- --------------------------------------------------------------------------------
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 SEPTEMBER 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
----------------------------------------
(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 November 9, 2001, 80,889,525 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.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
NATIONAL-OILWELL, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<Table>
<Caption>
September 30, December 31,
2001 2000
------------- -------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 22,192 $ 42,459
Receivables, less allowance of $7,611 and $5,885 460,583 295,163
Inventories 509,501 375,734
Deferred income taxes 16,426 17,105
Prepaids and other current assets 11,327 12,642
------------- -------------
1,020,029 743,103
Property, plant and equipment, net 175,654 173,646
Deferred income taxes 20,779 19,919
Goodwill 349,541 329,340
Property held for sale 8,271 8,271
Other assets 11,875 4,615
------------- -------------
$ 1,586,149 $ 1,278,894
============= =============
LIABILITIES AND OWNERS' EQUITY
Current liabilities:
Accounts payable 219,848 165,801
Customer prepayments 17,960 19,371
Accrued compensation 17,920 10,996
Other accrued liabilities 77,770 66,614
------------- -------------
333,498 262,782
Long-term debt 385,848 222,477
Deferred income taxes 15,297 16,030
Other liabilities 7,113 10,399
------------- -------------
741,756 511,688
Commitments and contingencies
Stockholders' equity:
Common stock - par value $.01; 80,889,525 shares
and 80,508,535 shares issued and outstanding
at September 30, 2001 and December 31, 2000 809 805
Additional paid-in capital 592,295 583,225
Accumulated other comprehensive income (29,460) (21,858)
Retained earnings 280,749 205,034
------------- -------------
844,393 767,206
------------- -------------
$ 1,586,149 $ 1,278,894
============= =============
</Table>
The accompanying notes are an integral part of these statements.
1
NATIONAL-OILWELL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except per share data)
<Table>
<Caption>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
Revenues $ 486,812 $ 286,325 $ 1,281,712 $ 820,521
Cost of revenues 366,907 222,040 967,140 640,338
----------- ----------- ----------- -----------
Gross profit 119,905 64,285 314,572 180,183
Selling, general and administrative 63,003 42,046 174,650 132,842
Special charges -- -- -- 13,000
----------- ----------- ----------- -----------
Operating income 56,902 22,239 139,922 34,341
Other income (expense):
Interest and financial costs (6,963) (4,672) (18,522) (14,142)
Interest income 183 973 1,428 2,394
Other (2,753) 667 (14) (7,802)
----------- ----------- ----------- -----------
Income before income taxes 47,369 19,207 122,814 14,791
Provision for income taxes 18,431 7,299 47,099 7,863
----------- ----------- ----------- -----------
Net income $ 28,938 $ 11,908 $ 75,715 $ 6,928
=========== =========== =========== ===========
Net income per share:
Basic $ 0.36 $ 0.15 $ 0.94 $ 0.09
=========== =========== =========== ===========
Diluted $ 0.36 $ 0.15 $ 0.93 $ 0.09
=========== =========== =========== ===========
Weighted average shares outstanding:
Basic 80,887 80,111 80,787 78,991
=========== =========== =========== ===========
Diluted 81,437 81,727 81,834 80,435
=========== =========== =========== ===========
</Table>
The accompanying notes are an integral part of these statements.
2
NATIONAL-OILWELL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
<Table>
<Caption>
Nine Months Ended September 30,
-------------------------------
2001 2000
--------- ---------
Cash flow from operating activities:
Net income $ 75,715 $ 6,928
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 28,882 25,953
Provision for losses on receivables 2,609 885
Provision for deferred income taxes (7) (8,176)
Gain on sale of assets (2,553) (2,862)
Foreign currency transaction loss/(gain) 84 (706)
Special charge -- 13,000
Changes in assets and liabilities, net of acquisitions and divestments:
Receivables (151,667) (18,558)
Net investment in marketable securities -- 14,686
Inventories (124,838) (21,797)
Prepaid and other current assets 1,518 (3,530)
Accounts payable 43,331 36,559
Other assets/liabilities, net (14,420) (19,430)
--------- ---------
Net cash provided (used) by operating activities (141,346) 22,952
--------- ---------
Cash flow from investing activities:
Purchases of property, plant and equipment (22,208) (16,991)
Proceeds from sale of assets 6,973 6,590
Businesses acquired and investments in joint ventures, net of cash (36,710) (48,208)
--------- ---------
Net cash used by investing activities (51,945) (58,609)
--------- ---------
Cash flow from financing activities:
Proceeds from line of credit 16,578 1,744
Proceeds from stock options exercised 10,362 11,434
Net proceeds from issuance of long-term debt 146,631 --
Other -- 37
--------- ---------
Net cash provided by financing activities 173,571 13,215
--------- ---------
Effect of exchange rate loss on cash (547) (602)
--------- ---------
Decrease in cash and equivalents (20,267) (23,044)
Cash and cash equivalents, beginning of period 42,459 48,091
--------- ---------
Cash and cash equivalents, end of period $ 22,192 $ 25,047
========= =========
Supplemental disclosures of cash flow information:
Cash payments during the period for:
Interest $ 19,932 $ 14,921
Income taxes 22,563 4,879
</Table>
The accompanying notes are an integral part of these statements.
3
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 nine months ended September 30, 2001 and 2000 may not
be indicative of results for the full year. No significant accounting changes
have occurred during the nine months ended September 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. 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.
4
3. INVENTORIES
Inventories consist of (in thousands):
<Table>
<Caption>
September 30, December 31,
2001 2000
------------- -------------
Raw materials and supplies $ 35,067 $ 32,306
Work in process 128,595 63,758
Finished goods and purchased products 345,839 279,670
------------- -------------
Total $ 509,501 $ 375,734
============= =============
</Table>
4. COMPREHENSIVE INCOME
The components of comprehensive income are as follows (in thousands):
<Table>
<Caption>
Quarter Ended September 30, Nine Months Ended September 30,
--------------------------- --------------------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Net income $ 28,938 $ 11,908 $ 75,715 $ 6,928
Currency translation adjustments 5,166 3,984 (6,156) (7,121)
Unrealized gains (losses) on securities -- 162 (1,446) 732
---------- ---------- ---------- ----------
Comprehensive income $ 34,104 $ 16,054 $ 68,113 $ 539
========== ========== ========== ==========
</Table>
5
5. BUSINESS SEGMENTS
Segment information (unaudited) follows (in thousands):
<Table>
<Caption>
Quarter Ended September 30, Nine Months Ended September 30,
----------------------------- -------------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
Revenues from unaffiliated customers
Products and Technology $ 294,011 $ 152,989 $ 750,995 $ 441,874
Distribution Services 192,801 133,336 530,717 378,647
----------- ----------- ----------- -----------
486,812 286,325 1,281,712 820,521
Intersegment revenues
Products and Technology 23,006 13,829 63,078 35,139
Distribution Services 768 61 1,563 256
----------- ----------- ----------- -----------
23,774 13,890 64,641 35,395
Operating income
Products and Technology 50,413 20,297 124,542 49,404
Distribution Services 9,244 3,892 23,052 7,388
----------- ----------- ----------- -----------
Total profit for reportable segments 59,657 24,189 147,594 56,792
Special charges -- -- -- 13,000
Unallocated corporate costs (2,755) (1,950) (7,672) (9,451)
Operating income 56,902 22,239 139,922 34,341
Net interest expense (6,780) (3,699) (17,094) (11,748)
Other income (expense) (2,753) 667 (14) (7,802)
----------- ----------- ----------- -----------
Income before income taxes $ 47,369 $ 19,207 $ 122,814 $ 14,791
=========== =========== =========== ===========
Total assets
Products and Technology $ 1,289,321 $ 1,005,554
Distribution Services 280,736 219,480
</Table>
6. LONG-TERM DEBT
Long-term debt consists of (in thousands):
<Table>
<Caption>
September 30, December 31,
2001 2000
------------- -------------
Revolving credit facilities $ 85,848 $ 72,477
6-7/8% senior notes 150,000 150,000
6-1/2% senior notes 150,000 --
------------- -------------
385,848 222,477
Less current portion -- --
------------- -------------
$ 385,848 $ 222,477
============= =============
</Table>
In March 2001, we sold $150 million of 6-1/2% unsecured senior notes due March
15, 2011. Proceeds were used to repay indebtedness under our existing revolving
credit facility and to fund working capital needs. Interest is payable on March
15 and September 15 of each year.
6
In June 1998, we sold $150 million of 6-7/8% 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 $21.3 million and $19.4 million were outstanding at September 30, 2001
and December 31, 2000, respectively. The credit facility provides for interest
at prime or LIBOR plus 0.625% (6.0% and 3.7% at September 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 September 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 $9.0 million were outstanding at
September 30, 2001.
7. OTHER INCOME/(EXPENSE)
During July 2001, the Company sold its specialty steel business, acquired
through the merger with IRI International Corporation, for $3.2 million,
generating a $1.2 million pre-tax loss on the disposal ($0.8 million after-tax).
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.
8. RECENTLY ISSUED ACCOUNTING STANDARDS
In August 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets". This
statement supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of ", and the accounting and
reporting provisions of Accounting Principles Board Opinion ("APB") No. 30. This
statement retains the fundamental provisions of SFAS No. 121 and the basic
requirements of APB No. 30; however, it establishes a single accounting model to
be used for long-lived assets to be disposed of by sale and it expands the
presentation of discontinued operations to include more disposal transactions.
The provisions of this statement are effective for financial statements issued
for fiscal years beginning after December 15, 2001. We do not anticipate that
the statement will have a material impact on our financial position or results
of operations.
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.
We will apply the new rules on accounting for goodwill and other intangible
assets beginning in the first quarter of 2002. Application of the
non-amortization provisions of the Statement is expected to result in an
increase in net income of $11 million ($0.13 per diluted share) per year. Prior
to implementation, as of January 1, 2002 we will perform the first of the
required impairment tests of goodwill and indefinite lived
7
intangible assets. We have 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.
8
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, computerized 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 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. In late July 1999, oil
prices recovered to a range of $25-$35 per barrel and remained in this range
throughout the first half of 2001. Oil prices have fallen to the $20-$22 range
during the third quarter 2001 due to concerns about the global economic
environment. Natural gas prices have fluctuated significantly as well,
increasing from a fairly consistent $2.00-$3.00 per MCF to over $10.00 per MCF
in the winter of 2000/2001. Increased supply and lower demand then pushed prices
back down to the $2.00-$3.00 range by the third quarter of 2001. As a result,
general market conditions have been extremely volatile. Lower commodity prices
are expected to reduce our revenues during the fourth quarter of 2001 and at
least through the first half of 2002.
RESULTS OF OPERATIONS
Operating results excluding special charges by segment are as follows (in
thousands):
<Table>
<Caption>
Quarter Ended September 30, Nine Months Ended September 30,
----------------------------- -------------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
Revenues
Products and Technology $ 317,017 $ 166,818 $ 814,073 $ 477,013
Distribution Services 193,569 133,397 532,280 378,903
Eliminations (23,774) (13,890) (64,641) (35,395)
----------- ----------- ----------- -----------
Total $ 486,812 $ 286,325 $ 1,281,712 $ 820,521
=========== =========== =========== ===========
Operating Income excluding special charges
Products and Technology $ 50,413 $ 20,297 $ 124,542 $ 49,404
Distribution Services 9,244 3,892 23,052 7,388
Corporate (2,755) (1,950) (7,672) (9,451)
----------- ----------- ----------- -----------
Total $ 56,902 $ 22,239 $ 139,922 $ 47,341
=========== =========== =========== ===========
</Table>
9
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. 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 $150 million (90%)
in the third 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 $30 million in the third quarter of 2001 compared to the
same quarter in 2000 due principally to the higher revenue volume.
Products and Technology revenues in the first nine months of 2001 increased $337
million (71%) as compared to 2000 due to strong capital backlog sales, generally
improved market opportunities in all product lines and year 2001 acquisitions.
Capital equipment sales from backlog increased $157 million and drilling spares
sales increased $31 million during the first nine months when compared to the
same period of the prior year. Mission pumps and expendable parts increased $46
million while downhole motors and tools were higher by $63 million. Operating
income increased by $75 million in the first nine months of 2001 as a result of
the higher volume.
Revenues from Products and Technology segment acquisitions completed subsequent
to September 30, 2000 under the purchase method of accounting generated $33
million and $66 million in incremental revenues in the third quarter and first
nine months of 2001, respectively. These acquisitions accounted for operating
income of $5 million and $9 million during the third quarter and the first nine
months of 2001 over the same period of the prior year.
Backlog of the Products and Technology capital products was $453 million at
September 30, 2001 compared to $282 million at December 31, 2000 and $180
million at September 30, 2000. Virtually all of the products in the current
backlog will be delivered by the end of 2002.
Distribution Services
Our Distribution Services segment offers comprehensive supply chain integration
services to the drilling and production segments of the oil and gas industry.
Our network of approximately 130 service centers located in the United States,
Canada and near other major drilling and production activity areas worldwide use
state of the art information technology platforms to provide procurement,
inventory
10
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 third quarter of 2001 over
the comparable 2000 period by $60 million. This 45% increase is driven primarily
by higher hydrocarbon prices with our U.S. operations up 51% and Canada 25%.
Revenues from the sale of parts manufactured by the Products & Technology
segment were up 24% while the maintenance, repair and operating supplies
revenues increased 49% over the second quarter of 2000. Operating income in the
third quarter of 2001 of $9 million was a $5 million improvement over the third
quarter of 2000, principally due to the higher revenue volume.
Revenues for the Distribution Services segment increased $153 million in the
first nine months of 2001 when compared to the prior year. Canadian revenues
were up 13% and the U.S. operations 53% as a result of sustained North American
drilling and production activity during most of the first nine months of 2001.
This volume increase generated an operating income increase of $16 million
during the first nine months of 2001 when compared to the similar 2000 period.
Corporate
Corporate charges represent the unallocated portion of centralized and executive
management costs. Corporate spending of $2.8 million during the third quarter of
2001 is $0.8 million greater than the same period of the prior year due to
various e-strategy, marketing and corporate governance initiatives. A reduction
of $1.8 million in the first nine 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 nine months ended
September 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 September 30, 2001 we had working capital of $687 million, an increase of
$207 million from December 31, 2000, primarily due to the significant ramp up in
business during this period. Acquisitions completed during the first nine months
of 2001 were accountable for $40 million of this increase. Significant increases
in accounts receivable of $165 million and inventory of $134 million were
partially offset by an increase in accounts payable and customer prepayments of
$53 million and income tax, interest and compensation accruals of $18 million.
Cash and equivalents decreased $20 million during the first nine months of 2001.
Total capital expenditures were $22 million during the first nine months of 2001
compared to $17 million in the same period 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 for our products and services.
11
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 $21.3 million and $19.4 million were outstanding at September 30, 2001
and December 31, 2000, respectively. The credit facility provides for interest
at prime or LIBOR plus 0.625% (6.0% and 3.7% at September 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 September 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 $9.0 million were outstanding at
September 30, 2001.
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.
12
RECENTLY ISSUED ACCOUNTING STANDARDS
In August 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets". This
statement supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of ", and the accounting and
reporting provisions of Accounting Principles Board Opinion ("APB") No. 30. This
statement retains the fundamental provisions of SFAS No. 121 and the basic
requirements of APB No. 30; however, it establishes a single accounting model to
be used for long-lived assets to be disposed of by sale and it expands the
presentation of discontinued operations to include more disposal transactions.
The provisions of this statement are effective for financial statements issued
for fiscal years beginning after December 15, 2001. We do not anticipate that
the statement will have a material impact on our financial position or results
of operations.
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.
We will apply the new rules on accounting for goodwill and other intangible
assets beginning in the first quarter of 2002. Application of the
non-amortization provisions of the Statement is expected to result in an
increase in net income of $11 million ($0.13 per diluted share) per year. Prior
to implementation, as of January 1, 2002 we will perform the first of the
required impairment tests of goodwill and indefinite lived intangible assets. We
have 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.
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 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: November 13, 2001 /s/ STEVEN W. KRABLIN
------------------ ------------------------
Steven W. Krablin
Principal Financial and Accounting Officer
and Duly Authorized Signatory
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