================================================================================
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, 2002 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 8, 2002, 80,985,089 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>
March 31, December 31,
2002 2001
----------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 28,521 $ 43,220
Receivables, less allowance of $9,855 and $9,094 382,418 382,153
Inventories 450,540 455,934
Deferred income taxes 16,825 16,825
Prepaids and other current assets 14,473 10,434
----------- ------------
892,777 908,566
Property, plant and equipment, net 167,225 168,951
Deferred income taxes 16,308 16,663
Goodwill 362,065 352,094
Property held for sale 9,109 12,144
Other assets 12,903 13,278
----------- ------------
$ 1,460,387 $ 1,471,696
=========== ============
LIABILITIES AND OWNERS' EQUITY
Current liabilities:
Current portion of long-term debt 25,130 10,213
Accounts payable 143,227 161,277
Customer prepayments 12,140 9,843
Accrued compensation 6,396 23,661
Other accrued liabilities 55,864 72,315
----------- ------------
242,757 277,309
Long-term debt 300,000 300,000
Deferred income taxes 22,397 20,380
Other liabilities 8,317 6,467
----------- ------------
573,471 604,156
Commitments and contingencies
Stockholders' equity:
Common stock - par value $.01; 80,967,003 shares
and 80,902,882 shares issued and outstanding
at March 31, 2002 and December 31, 2001 810 809
Additional paid-in capital 593,147 592,507
Accumulated other comprehensive income (37,323) (34,873)
Retained earnings 330,282 309,097
----------- ------------
886,916 867,540
----------- ------------
$ 1,460,387 $ 1,471,696
=========== ============
</Table>
The accompanying notes are an integral part of these statements.
NATIONAL-OILWELL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<Table>
<Caption>
Three Months Ended March 31,
----------------------------
2002 2001
---------- ----------
Revenues $ 388,986 $ 360,272
Cost of revenues 295,941 269,099
---------- ----------
Gross profit 93,045 91,173
Selling, general and administrative 55,329 54,944
---------- ----------
Operating income 37,716 36,229
Other income (expense):
Interest and financial costs (6,063) (5,327)
Interest income 237 527
Other 1,212 3,211
---------- ----------
Income before income taxes 33,102 34,640
Provision for income taxes 11,917 13,162
---------- ----------
Net income $ 21,185 $ 21,478
========== ==========
Net income per share:
Basic $ 0.26 $ 0.27
========== ==========
Diluted $ 0.26 $ 0.26
========== ==========
Weighted average shares outstanding:
Basic 80,920 80,616
========== ==========
Diluted 81,585 81,977
========== ==========
</Table>
The accompanying notes are an integral part of these statements.
2
NATIONAL-OILWELL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<Table>
<Caption>
Three Months Ended March 31,
----------------------------
2002 2001
---------- ----------
Cash flow from operating activities:
Net income $ 21,185 $ 21,478
Adjustments to reconcile net income to net cash
used by operating activities:
Depreciation and amortization 6,333 9,469
Provision for losses on receivables 1,030 635
Provision for deferred income taxes 353 55
Gain on sale of assets (600) (805)
Foreign currency transaction gain (604) (826)
Changes in assets and liabilities, net of acquisitions:
Receivables 1,244 (25,049)
Inventories 8,998 (40,869)
Prepaid and other current assets (4,029) (2,784)
Accounts payable (16,496) 29,631
Other assets/liabilities, net (29,617) (20,796)
---------- ----------
Net cash used by operating activities (12,203) (29,861)
---------- ----------
Cash flow from investing activities:
Purchases of property, plant and equipment (4,409) (6,881)
Proceeds from sale of assets 1,718 2,021
Businesses acquired, net of cash (15,432) (26,701)
---------- ----------
Net cash used by investing activities (18,123) (31,561)
---------- ----------
Cash flow from financing activities:
Borrowings (payments) on line of credit 14,953 (68,217)
Proceeds from stock options exercised 641 5,726
Net proceeds from issuance of long-term debt -- 146,631
---------- ----------
Net cash provided by financing activities 15,594 84,140
---------- ----------
Effect of exchange rate gain (loss) on cash 33 (1,009)
---------- ----------
Increase (decrease) in cash and equivalents (14,699) 21,709
Cash and cash equivalents, beginning of period 43,220 42,459
---------- ----------
Cash and cash equivalents, end of period $ 28,521 $ 64,168
========== ==========
Supplemental disclosures of cash flow information:
Cash payments during the period for:
Interest $ 10,476 $ 6,726
Income taxes $ 14,886 $ 2,387
</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 common stock and per share data assumes the exchange of
all Exchangeable Shares issued in connection with the combination with Dreco
Energy Services Ltd. effective September 25, 1997. Each Exchangeable Share is
intended to have substantially identical economic and legal rights as, and are
expected to be exchanged during 2002 on a one-for-one basis for, a share of
National Oilwell common stock. The preparation of financial statements in
conformity with generally accepted accounting principles requires management 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 2001 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, 2002 and 2001 may not be indicative of
results for the full year.
2. ACQUISITIONS
On January 10, 2002, we completed the acquisition of the assets and business of
HAL Oilfield Pump & Equipment Company ("Halco") for $15.4 million. This
business, which designs, manufactures and distributes centrifugal pumps, pump
packages and expendable parts, is complementary to our Mission pump product
line. The acquisition was accounted for as a purchase with goodwill
approximating $10.0 million.
We made nine acquisitions in 2001, ranging in value from $600,000 to a high of
$16.5 million, for a total cash outlay of $51.5 million. All of these
acquisitions were accounted for under the purchase method of accounting and
generated approximately $30 million in goodwill. Two of the larger acquisitions,
Integrated Power Systems and Maritime Hydraulics (Canada) Ltd., were acquired in
early January 2001 and their financial results were included in our consolidated
financial results for substantially the entire year. Pro-forma information
related to acquisitions has not been provided as such amounts are not material
individually or in the aggregate.
3. INVENTORIES
Inventories consist of (in thousands):
<Table>
<Caption>
March 31, December 31,
2002 2001
----------- ------------
Raw materials and supplies $ 35,927 $ 39,272
Work in process 105,260 101,376
Finished goods and purchased products 309,353 315,286
----------- ------------
Total $ 450,540 $ 455,934
=========== ============
</Table>
Page 4
4. COMPREHENSIVE INCOME
The components of comprehensive income are as follows (in thousands):
<Table>
<Caption>
Quarter Ended March 31,
--------------------------
2002 2001
---------- ----------
Net income $ 21,185 $ 21,478
Currency translation adjustments (2,450) (10,192)
Unrealized losses on securities -- (1,448)
---------- ----------
Comprehensive income $ 18,735 $ 9,838
========== ==========
</Table>
5. BUSINESS SEGMENTS
Segment information (unaudited) follows (in thousands):
<Table>
<Caption>
Quarter Ended March 31,
--------------------------
2002 2001
---------- ----------
Revenues from unaffiliated customers
Products and Technology $ 222,019 $ 196,558
Distribution Services 166,967 163,714
---------- ----------
388,986 360,272
Intersegment revenues
Products and Technology 19,253 24,684
Distribution Services 562 395
---------- ----------
19,815 25,079
Operating income (loss)
Products and Technology 35,450 32,109
Distribution Services 4,568 6,399
---------- ----------
Total profit for reportable segments 40,018 38,508
Unallocated corporate costs (2,302) (2,279)
---------- ----------
Operating income 37,716 36,229
Net interest expense (5,826) (4,800)
Other income (expense) 1,212 3,211
---------- ----------
Income before income taxes $ 33,102 $ 34,640
========== ==========
Total assets
Products and Technology $1,210,795 $1,142,388
Distribution Services 251,045 241,903
</Table>
Page 5
6. LONG-TERM DEBT
Long-term debt consists of (in thousands):
<Table>
<Caption>
March 31, December 31,
2002 2001
---------- ------------
Revolving credit facilities $ 25,130 $ 10,213
6-7/8% senior notes 150,000 150,000
6-1/2% senior notes 150,000 150,000
---------- ------------
325,130 310,213
Less current portion 25,130 10,213
---------- ------------
$ 300,000 $ 300,000
========== ============
</Table>
In 1997, we entered into a five-year unsecured $125 million revolving credit
facility that expires in September 2002. The credit facility is available for
acquisitions and general corporate purposes and provides up to $50 million for
letters of credit, of which $20.9 million and $20.7 million were outstanding at
March 31, 2002 and December 31, 2001, respectively. The credit facility provides
for interest at prime or LIBOR plus 0.5% (4.75% and 2.50% at March 31, 2002)
subject to adjustment based on National Oilwell's Capitalization Ratio, as
defined. Current portion of long-term debt increased $14.9 million during the
quarter ending March 31, 2002 primarily due to the acquisition of Halco. We have
entered negotiations to secure a revolving credit facility of a similar size
prior to the expiration of the current facility.
The senior notes contain reporting covenants and the credit facility contains
financial covenants and ratios regarding minimum tangible net worth, maximum
debt to capital and minimum interest coverage. At March 31, 2002 and December
31, 2001, the Company was in compliance with all covenants governing these
facilities.
We also have additional credit facilities totaling $50.4 million used primarily
for letters of credit, of which $3.1 million were outstanding at March 31, 2002.
7. RECENTLY ISSUED ACCOUNTING STANDARDS
On January 1, 2002, we adopted Statement of Financial Accounting Standards No.
142, Goodwill and Other Intangible Assets ("SFAS No. 142"). 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 SFAS
No. 142. Other intangible assets will continue to be amortized over their useful
lives. During the second quarter of 2002, we will complete the first of the
required impairment tests of goodwill and indefinite lived assets as of December
31, 2001. We do not believe the adoption of this provision of the new rules will
have a material impact on the consolidated financial statements. The following
information provides net income for the three-month period ended March 31, 2001
adjusted to exclude amortization expense recognized in this period related to
goodwill (in thousands):
<Table>
Reported net income $ 21,478
Add back: Goodwill amortization, net of tax 2,691
--------
Adjusted net income $ 24,169
Adjusted net income per share:
Basic $ 0.30
Diluted $ 0.29
Weighted average shares outstanding:
Basic 80,616
Diluted 81,977
</Table>
Page 6
In August 2001, the 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, Reporting the Results of Extraordinary,
Unusual, and Infrequently Occurring Events and Transactions. 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. Adoption of this statement did not have a
material impact on our financial position or results of operations.
Page 7
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
drilling systems, drilling equipment and downhole products as well as the
distribution to the oil and gas industry of maintenance, repair and operating
products. Our 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. Oil and gas prices have been
volatile over the last ten years, ranging from $10 - $40 per barrel. Oil prices
were low in 1998, generally ranging from $11 to $16 per barrel. In 1999, oil
prices recovered to more normal historical levels, and were generally in the
$25-$30 per barrel range during 2000. Prices once again declined in the second
half of 2001, generally ranging between $18 and $22. During 2002, oil prices
have increased and are generally around $25 per barrel. Spot gas prices have
also been volatile over the last ten years, ranging from less than $1.00 per
mmbtu to above $10.00. Gas prices were moderate in 1998 and 1999, generally
ranging from $1.80 to $2.50 per mmbtu. Gas prices strengthened throughout 2000,
generally ranging from $4-$8 per mmbtu. In the second half of 2001, gas prices
were under pressure again, and generally ranged from $2.20 to $3.00 per mmbtu.
Gas prices have increased in 2002 and are generally around $3.50 per mmbtu. We
expect our revenues to increase if our customers gain confidence in sustained
commodity prices at current levels and as their cash flows from operations
improve.
We conduct our operations through the following segments:
Products and Technology
The Products and Technology segment designs and manufactures a large line of
proprietary products, including drawworks, mud pumps, top drives, automated pipe
handling, electrical control systems, 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 can result in large fluctuations in volume between periods
depending on the size and timing of the shipment of orders. In addition, the
segment provides drilling motors and downhole tools, as well as drilling pump
expendable products for maintenance of National Oilwell's and other
manufacturers' equipment.
Distribution Services
Distribution Services revenues result primarily from the sale of maintenance,
repair and operating supplies ("MRO") from our network of approximately 150
distribution service centers worldwide. These products are purchased from
numerous manufacturers and vendors, including our Products and Technology
segment.
Page 8
RESULTS OF OPERATIONS
Operating results by segment are as follows (in thousands):
<Table>
<Caption>
Quarter Ended March 31,
--------------------------
Revenues 2002 2001
---------- ----------
Products and Technology $ 241,272 $ 221,242
Distribution Services 167,529 164,109
Eliminations (19,815) (25,079)
---------- ----------
Total $ 388,986 $ 360,272
========== ==========
Operating Income
Products and Technology $ 35,450 $ 32,109
Distribution Services 4,568 6,399
Corporate (2,302) (2,279)
---------- ----------
Total $ 37,716 $ 36,229
========== ==========
</Table>
Products and Technology
Revenues for the Products and Technology segment increased by $20 million (9%)
in the first quarter of 2002 as compared to the same quarter in 2001 due to
increased capital equipment sales of approximately $40 million. Sales of
drilling spare parts were flat compared to the same quarter in the prior year
while sales of purchased rig components and expendable pumps and related parts
decreased $9 million. Lower drilling activity in the Western Hemisphere markets
impacted the downhole motors and tools business as revenues declined
approximately $13 million in the first quarter of 2002 as compared to the same
quarter in 2001. Operating income increased by $3 million in the first quarter
of 2002 compared to the same quarter in 2001 due primarily to the exclusion of
goodwill amortization ($2.6 million in the first quarter of 2001), as required
by the new accounting standard (SFAS No. 142). Incremental margin resulting from
the revenue increase was offset by increases in selling expenses, agent
commissions and certain fixed costs.
Backlog of the Products and Technology capital products was $300 million at
March 31, 2002 compared to $385 million at December 31, 2001 and $382 million at
March 31, 2001. Approximately 2/3 of the product in current backlog will be
delivered during 2002.
Distribution Services
Distribution Services revenues increased $3 million, or 2%, during the first
quarter of 2002 over the comparable 2001 period. International activity was the
key contributor to this increase as the United States and Canada revenues were
impacted by the 30% reduction in North American activity levels, falling 13% and
10% respectively from the same quarter in 2001. Revenues from the sale of parts
manufactured by the Products & Technology segment were up 26% while the
maintenance, repair and operating supplies revenues reflected a 1% decline from
the first quarter of 2001. Operating income in the first quarter of 2002 of $4.6
million was $1.8 million lower than the first quarter of 2001, as margin from
the higher revenue volume was offset by significant infrastructure growth and
ongoing e-commerce initiatives previously managed at the corporate level. This
infrastructure allows us to maintain our geographic coverage, retain key
employees and provide customer service in anticipation of an increase in market
opportunities later this year. Excluding goodwill amortization, as required
under the new accounting standard (SFAS No. 142), operating income in the first
quarter of 2001 would have increased $0.2 million to $6.6 million.
Page 9
Corporate
Corporate charges represent the unallocated portion of centralized and executive
management costs. These costs remained virtually flat during the quarter ending
March 31, 2002 when compared to the same quarter in the prior year.
Interest Expense
Interest expense increased during the three months ended March 31, 2002 as
compared to the prior year due to higher levels of debt, as the March 15, 2001
issuance of the $150 million in senior notes were outstanding for the entire
period. Funding for recent acquisitions and working capital requirements are the
primary drivers of this increase in debt.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2002 we had working capital of $650 million, an increase of $19
million from December 31, 2001 primarily due to income from operations. Accounts
receivable and inventory remained fairly level and the current portion of
long-term debt increase virtually offset 2001 income tax payments that are
reflected in the reduction of other accrued liabilities. Cash and equivalents
decreased $15 million primarily due to the payment of the 2001 company-wide
incentive plan and the acquisition of Halco, with a reduction in accounts
payable accounting for the remainder of the change in working capital.
Total capital expenditures were $4 million during the first three months of 2002
compared to $7 million in the first three months of the prior year. Additions to
the downhole rental tool fleet and enhancements to information management
systems represent the majority of these capital expenditures. We believe we have
sufficient existing manufacturing capacity to meet currently anticipated demand
through 2002 for our products and services.
In 1997, we entered into a five-year unsecured $125 million revolving credit
facility that expires in September 2002. The credit facility is available for
acquisitions and general corporate purposes and provides up to $50 million for
letters of credit, of which $20.9 million and $20.7 million were outstanding at
March 31, 2002 and December 31, 2001, respectively. The credit facility provides
for interest at prime or LIBOR plus 0.5% (4.75% and 2.50% at March 31, 2002)
subject to adjustment based on National Oilwell's Capitalization Ratio, as
defined. Current portion of long-term debt increased $14.9 million during the
quarter ending March 31, 2002 due to the classification of all of our revolving
credit facility as a current liability. We have entered negotiations to secure a
revolving credit facility of a similar size prior to the expiration of the
current facility.
The senior notes contain reporting covenants and the credit facility contains
financial covenants and ratios regarding minimum tangible net worth, maximum
debt to capital and minimum interest coverage. At March 31, 2002 and December
31, 2001, the Company was in compliance with all covenants governing these
facilities.
We also have additional credit facilities totaling $50.4 million used primarily
for letters of credit, of which $3.1 million were outstanding at March 31, 2002.
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.
Page 10
We have not entered into any transactions, arrangements, or relationships with
unconsolidated entities or other persons which would materially affect
liquidity, or the availability of or requirements for capital resources.
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.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of our financial statements requires us to make certain
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Our estimation process generally relates to
potential bad debts, obsolete and slow moving inventory, value of intangible
assets, and deferred income tax accounting. Our estimates are based on
historical experience and on our future expectations that we believe to be
reasonable under the circumstances. The combination of these factors result in
the amounts shown as carrying values of assets and liabilities in the financial
statements and accompanying notes. Actual results could differ from our current
estimates and those differences may be material.
We believe the following accounting policies are the most critical in the
preparation of our consolidated financial statements:
We maintain an allowance for doubtful accounts for accounts receivables by
providing for specifically identified accounts where collectibility is doubtful
and a general allowance based on the aging of the receivables compared to past
experience and current trends. A majority of our revenues come from drilling
contractors, independent oil companies, international oil companies and
government-owned or government-controlled oil companies, and we have
receivables, some denominated in local currency, in many foreign countries. If,
due to changes in worldwide oil and gas drilling activity or changes in economic
conditions in certain foreign countries, our customers were unable to repay
these receivables, additional allowances would be required.
Reserves for inventory obsolescence are determined based on our historical usage
of inventory on-hand as well as our future expectations related to our
substantial installed base and the development of new products. The amount
reserved is the recorded cost of the inventory minus its estimated realizable
value. Changes in worldwide oil and gas drilling activity and the development of
new technologies associated with the drilling industry could require additional
allowances to reduce the value of inventory to the lower of its cost or net
realizable value.
Business acquisitions are accounted for using the purchase method of accounting.
The cost of the acquired company is allocated to identifiable tangible and
intangible assets based on estimated fair value, with the excess allocated to
goodwill. The determination of impairment on long-lived assets, including
goodwill, is conducted as indicators of impairment are present. If such
indicators were present, the determination of the amount of impairment would be
based on our judgments as to the future operating cash flows to be generated
from these assets throughout their estimated useful lives. Our industry is
highly cyclical and our estimates of the period over which future cash flows
will be generated, as well as the predictability of these cash flows, can have a
significant impact on the carrying value of these assets. In periods of
prolonged down cycles, impairment charges may result.
Our net deferred tax assets and liabilities are recorded at the amount that is
more likely than not to be realized or paid. Should we determine that we would
not be able to realize all or part of the net deferred tax asset in the future,
an adjustment to the deferred tax assets would be charged to income in the
period of such determination.
Page 11
RECENTLY ISSUED ACCOUNTING STANDARDS
On January 1, 2002, we adopted Statement of Financial Accounting Standards No.
142, Goodwill and Other Intangible Assets ("SFAS No. 142"). 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 SFAS
No. 142. Other intangible assets will continue to be amortized over their useful
lives. During the second quarter of 2002, we will complete the first of the
required impairment tests of goodwill and indefinite lived assets as of December
31, 2001. We do not believe the adoption of this provision of the new rules will
have a material impact on the consolidated financial statements. The following
information provides net income for the three-month period ended March 31, 2001
adjusted to exclude amortization expense recognized in this period related to
goodwill (in thousands):
<Table>
Reported net income $ 21,478
Add back: Goodwill amortization, net of tax 2,691
--------
Adjusted net income $ 24,169
Adjusted net income per share:
Basic $ 0.30
Diluted $ 0.29
Weighted average shares outstanding:
Basic 80,616
Diluted 81,977
</Table>
In August 2001, the 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, Reporting the Results of Extraordinary,
Unusual, and Infrequently Occurring Events and Transactions. 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. Adoption of this statement did not have a
material impact on our financial position or results of operations.
Page 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.
Page 13
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: May 10, 2002 / s / Steven W. Krablin
--------------- ------------------------
Steven W. Krablin
Principal Financial and Accounting Officer
and Duly Authorized Signatory
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